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A    HISTORY 


OF 


American  Currency 


WITH  CHAPTERS  ON 

THE  ENGLISH  BANK  RESTRICTION 
AUSTRIAN  PAPER   MONEY 


BY 

William  g.  Sumner 

Professor  of  Political  &>  Social  Science 
in   Yale  College 


TO  WHICH  IS  APPENDED 


"THE    BULLION    REPORT" 

LIBRA  U  I 

UNIVERSITY  of 

OALIlAxIA< 


NEW    YORK 
HENRY    HOLT   AND   COMPANY 

1874 


«& 


Entered  according  to  Act  of  Congress,  in  the  year  1874,  by 

HENRY    HOLT, 
In  the  Office  of  the  Librarian  of  Congress,  at  Washington. 


Maclauchlan, 

Stereotypcr  and  Printer,  56,  53  and  60  Park  Street,  Now  York. 


Jj  1  13  li  A  lx  X 
UNIVKKSITY   OF 

CALIFORNIA 


PREFACE. 


T  N  the  autumn  of  1873  I  published  in  the  '  Fi- 
-*•  nancier,"  four  or  five  short  sketches  of  those 
portions  of  history  which  are  most  instructive  in 
regard  to  doctrines  of  currency.  The  plan  was 
to  leave  the  historical  facts  to  tell  their  own  story 
without  comment.  It  succeeded  so  far  that  many 
persons  who  do  not  believe  that  financial  laws 
vary  with  the  period,  the  climate,  or  the  conti- 
nent, read  them  with  interest,  and  drew  the  infer- 
ences of  which  it  seemed  to  be  important  that  we 
should  all  be  convinced.  I  was  asked  to  re-pub- 
lish the  sketches  in  permanent  form.  In  acceding" 
to  this  request,  however,  I  desired  to  present 
these  chapters  of  history  more  completely,  and  I 
determined  also  to  incorporate  with  this  project 
another  plan  which  I  had  formed,  viz.,  to  edit 
the  Bullion  Report.  Two  of  the  articles  referred 
to  treated  of  the  paper  money  in  the  American 


iv  PREFACE. 

colonies,  and  the  crisis  of  1 8 19.  These  have  been 
expanded  here  into  an  outline  sketch  of  the  his- 
tory of  American  currency.  I  regard  the  history 
of  American  finance  and  politics  as  a  most  impor- 
tant department  which  lies  as  yet  almost  un- 
touched. The  materials  even  are  all  in  the  rough, 
and  it  would  require  very  long  time  and  extensive 
research  to  do  any  justice  to  the  subject.  I  hope, 
at  some  future  time,  to  treat  it  as  it  deserves,  and 
I  should  not  now  have  published  anything  in  re- 
gard to  it,  if  I  had  not  felt  that  it  had,  at  this 
juncture,  great  practical  importance,  and  that 
even  a  sketch  might  be  more  useful  perhaps  than 
an  elaborate  treatise.  It  follows  from  this  ac- 
count of  the  origin  and  motive  of  the  present 
work,  that  it  does  not  aim  at  any  particular  unity, 
but  consists  of  three  distinct  historical  sketches, 
united  only  by  their  tendency  to  establish  two  or 
three  fundamental  doctrines  in  regard  to  cur 
rency. 

Yale  College y  March>  1874. 


LIB  iv  A  h  t 
UNIVERSITY  OF 

CALIFORNIA 


CHAPTER   I. 

HISTORY    OF   AMERICAN    CURRENCY. 

THE  English  Government  made  no  objection 
to  the  emigration  of  the  Puritans  to  New- 
England,  save  that  they  carried  money  out  of  the 
realm.  The  earliest  settlers  carried  very  little; 
other  forms  of  capital  were  more  valuable  to 
them,  and  they  had  no  use  for  it,  save  in 
exchanges  amongst  themselves.  Yet  Winthrop 
wrote  to  his  son,  in  1630,  especially  to  bring  ^150 
or  ^200.  in  money.  Later  settlers  brought 
money  to  exchange  for  cattle,  seed,  and  other 
forms  of  capital  which  the  first  colonists  had 
already  accumulated.  In  this  form,  the  law  that 
every  community  will  have  so  much  of  the 
precious  metals  as  it  needs  for  its  exchanges* 
vindicated  itself  in  their  case. 


*  See  p.  250. 


2         HISTORY  OF  AMERICAN  CURRENCY. 

Of  the  value  of  money  amongst  them  we  may 
judge  from  the  following  incidents  : 

A  married  clergyman  was  allowed  £30  per 
annum. 

Josias  Plaistowe,  having  stolen  four  baskets  of 
corn  from  the  Indians,  was  to  repay  eight  and 
be  fined  ^5. 

Carpenters,  sawyers,  joiners,  and  bricklayers 
(whose  services  were  in  great  demand,  and  had 
a  monopoly  price),  were  forbidden  to  take  over 
1 2d.  and  afterwards  2s.  per  day.  Penalty,  10s. 
to  giver  and  taker. 

Magistrates  had  3s.  6d.  and  deputies  2s.  6d. 
per  day. 

Ed.  Palmer,  being  found  guilty  of  extortion 
in  charging  13s.  ^d.  for  the  wood-work  of  the 
Boston  stocks,  was  fined  £$,  and  condemned 
to  sit  in  the  stocks  one  hour. 

In  January,  1631,  the  crops  having  failed  in 
England,  and  no  crop  having  yet  been  raised 
in  Massachusetts  Bay,  grain  was  at  famine 
prices.  Including  freight,  wheat  was  14s.  per 
bushel,  peas    10s.       Indian    corn   from   Virginia 


HISTORY  OF  AMERICAN  CURRENCY.         3 

I os.       Many   cattle    died.       A   cow   was    worth 
£2$  or  £30. 
V*l&  The  President  of  Harvard    College  was  con- 
demned to  pay  an  usher  ^"20  for  flogging  him. 

WAMPUMPEAG  CURRENCY. 

When  exploring  parties  penetrated  to  Long 
Island  Sound,  they  found  along  its  coasts  tribes 
of  Indians  far  more  civilized  than  those  who  had 
been  met  farther  north.  The  cause  or  indication 
of  their  superiority  was  that  they  had  a  circulat- 
ing medium.  This  consisted  of  beads  of  two 
kinds,  one  white,  made  out  of  the  end  of  a 
periwinkle  shell,  and  the  other  black,  made 
out  of  the  black  part  of  a  clam  shell.  These 
beads  were  rubbed  down  and  polished  as  articles 
of  ornament,  and  arranged  in  strings  or  belts  into 
jewelry,  being  objects  of  real  beauty  when  the 
colors  were  artistically  combined.  These  beads 
and  belts  were  used  by  the  Indians  themselves 
as  money,  and  were  real  money.  They  re- 
garded one  black  bead  as  worth  two  white. 
This  money  was  called  wampumpeag,.or  wam- 
pum, or  peag. 


4         HISTORY  OF  AMERICAN  CURRENCY. 

The  colonists  began  to  use  it  first  for  ex- 
changes with  the  Indians,  and  then  amongst 
themselves.  It  was  first  made  legal  tender  only 
for  1 2d.  in  Massachusetts,  but  by  custom  it  be-, 
came  the  prevailing  currency.  The  white  man 
also  proved  his  superiority  by  counterfeiting  it. 
A  fathom  or  belt  of  wampum  consisted  of  360 
beads.  One  fathom  of  white  would  buy  furs 
which  were  valued  at  5s.  sterling,  and  one  fathom 
of  black  would  buy  furs  worth  10s.     Therefore, 

360  white  beads,  =  6od. 

6  beads,  =  1  penny. 
360  black  beads,  =  i2od. 

3  beads,  =  1  penny. 

These  were  the  rates  at  which  the  peag  first 
circulated  among  the  colonists,  and  its  oper- 
ation is  in  many  respects  worthy  of  study.  It 
was,  for  the  Indians,  in  their  limited  community, 
a  perfect  money.  They  divided  their  labors, 
some  hunting  and  fishing,  some,  who  lived  on 
the  shore,  making  peag.  They  made  as  much 
as  they  chose  or  could.  It  was  a  product  of 
labor,  and  subject  to  demand  and  supply.  It  was 
valued  as  jewelry,  and  when    thus  made  up  and 


HISTORY  OF  AMERICAN  CURRENCY.         5 

appropriated,  it  passed  out  of  circulation.  Prices 
must  have  fluctuated  in  it  according  to  the  active 
circulation  which  extended  several  hundred  miles 
inland  westward.  It  was  subject  to  deterioration 
by  wear  and  use. 

When  the  colonists,  who  were  in  exchange 
relations  with  a  world  which  used  gold  and 
silver,  began  to  use  it,  other  currency  laws  came 
into  operation.  It  was  not  exportable,  would  not 
satisfy  foreign  debts,  was  not  desired  by  the 
whites,  save  for  the  conventional  purpose  of 
money. 

BARTER  CURRENCY. 

The  colonists  began,  soon  after  the  settlement 
of  Massachusetts  Bay,  to  use  a  barter  currency,* 
ostensibly  because  they  had  not  money  enough : 
really  because  they  wanted  to  spare  the  world's 
currency  to  purchase  real  capital,  which  was  their 
true  need.  The  currency  history  of  this  country 
has  been  nothing  but  a  repetition  of  this  down  to 
the  present  hour.  It  has  always  been  claimed 
that    a    new    country    must   be    drained    of    the 

*  In  1635  musket  bullets  were  used  for  change  at  a  farthing  apiece,  legal 
tender  for  sums  under  I2d. 


6        HISTORY  OF  AMERICAN  CURRENCY. 

precious  metals,  or  that  it  could  not  afford  so 
expensive  a  medium.  The  new  country  really 
needs  capital  in  all  forms.  The  only  question  is, 
whether,  being  poor  and  unable  to  get  all  that 
it  wants,  it  can  better  afford  to  do  without 
foreign  commodities  or  without  specie  currency. 
No  sound  economist  can  hesitate  how  to  decide 
this  question.  The  losses  occasioned  by  a  bad 
currency  far  exceed  the  gains  from  imported  com- 
modities. The  history  of  the  United  States  from 
the  landing  of  Winthrop  to  to-day  is  a  reiterated 
proof  of  it.  The  best  protection  to  native  man- 
ufactures is  to  keep  a  due  proportion-  of  the 
national  capital  in  a  specie  circulation,  and  do 
without,  or  find  substitutes  for,  or  learn  to  make, 
the  things  which  the  people  cannot  afford  to 
buy  from  older  and  more  advanced  countries. 
Credit,  in  its  legitimate  forms,  is  priceless  to  a 
new  community,  but  when  used  in  illegitimate 
forms,  as  in  a  pure  credit  currency,  or  in  a  cur- 
rency into  which  credit  enters  as  an  indefinable 
element,  it  makes  legitimate  credit  impossible. 
This  history  will  do  little  more  than  to  expose 
the  errors  involved  in  mistaking  credit  currency 


HISTORY  OF  AMERICAN  CURRENCY.         j 

for  money,  and  money  for  capital — errors  which 
are  repeated  to-day  by  the  new  States — and  to 
show  the  bad  results  of  those  errors. 

The  barter  currency  was  inferior  to  gold  and 
silver  in  cost.  When  corn  and  beaver,  and,  in 
fact,  all  other  products,  were  made  legal  tender, 
no  one  would  pay  debts  in  specie.  It  was 
hoarded  and  paid  away  for  imports. 

A  barter  currency  is  also  the  most  rapid  of  all 
currencies  in  its  depreciation.  If  a  cow  will  pay 
taxes,  the  leanest  cow  will  be  given.  If  corn 
will  pay  a  debt,  the  corn  which  is  of  poorest 
quality,  or  damaged  to  a  certain  extent,  will  be 
given. 

If  a  large  number  of  commodities  are  made  le- 
gal tender,  the  poorest  quality  of  the  commodity, 
which  may  be  cheapest  at  the  time  of  payment, 
will  be  given.  Credit  operations  are  therefore 
made  almost  impossible. 

Some  ludicrous  complaints,  on  the  part  of 
the  tax-gatherers,  scattered  up  and  down  in 
the  records,  bear  witness  to  the  fact  that  this 
was  all  experienced  in  New  England.  The 
more  barter  currency  was  used  "  because  money 


8         HISTORY  OF  AMERICAN  CURRENCY. 

was  scarce,"  the  scarcer  money  became.  Prices 
rose  to  fit  the  worst  form  of  payment  which 
the  seller  might  expect. 

Accordingly,  in  1640,  prices  having  risen  so 
much  that  the  nominal  "penny"  in  the  barter 
currency  had  fallen,  we  find  the  Massachusetts 
Court  re-rating  wampum  at  four  of  the  white  and 
two  of  the  black  for  a  penny,  to  the  amount  of 
1 2d.     Interest  was  8  per  cent. 

During  the  ten  years,  then,  from  1630  to  1640, 
the  specie  brought  over,  and  that  gained  by 
trade  with  the  West  Indies  and  Virginia  (not  yet 
great)  had  been  steadily  exported.  Merchants 
had  found  the  colony  a  good  market.  In  1640, 
Winthrop  tells  how  the  merchants  came  and 
drained  off  the  people's  cash.  That  he  should 
not  have  understood  the  case  is  not  strange,  but 
that  people  nowadays  should  not  have  learned 
from  the  experience  of  two  centuries  and  a  half, 
and  the  teachings  of  science,  any  better  than  to 
repeat  the  same  theory,  is  astonishing. 


HISTORY  OF  AMERICAN  CURRENCY.         9 

DISTRESS. 

Meantime  silver  prices  had,  of  course,  fallen 
enormously.  Now  came  other  circumstances  to 
prostrate  the  colony.  The  emigrants  ceased  to 
come,  on  account  of  the  prospect  of  a  new  state 
of  things  favorable  to  them  at  home.  Merchants 
came,  but  no  longer  found  a  market.  The  pro- 
ject of  moving  away  was  broached  and  earnestly 
debated  in  the  colony.  This  tended  to  still  fur- 
ther depress  the  price  of  all  fixed  improvements 
and  stock.  Cows  were  valued  in  taxation,  in 
1646,  at  £$  ;  horses  four  years  old,  £6. 

In  the  first,  years,  1630-1640,  22,000  peo- 
ple came  over.  For  some  time  after  1640  more 
went  back  than  came.  The  settlers  had  gained 
by  sales  of  stock,  etc.,  to  successive  new  arrivals. 
A  farmer  had  clothed  his  family  on  one  cow  sold 
annually  from  his  stock.  ^192,000  had  been 
spent  on  the  colony,  "  a  dear  purchase,  if  they 
had  paid  nothing  to  the  Council  of  Plymouth 
and  nothing  afterwards  to  the   sachems  of  the 

country."  /LIBRARY 

1* 

UNIVERSITY   OF 


IO      HISTORY  OF  AMERICAN  CURRENCY. 

NEW  INDUSTRIES. 

Under  the  new  circumstances  they  turned 
to  new  industries,  and,  so  far  from  being  ruined, 
were  far  better  off.  In  1641  corn  would  buy 
nothing,  but  was  legal  tender  for  debts.  They 
turned  to  ship-building,  carrying  between  Vir- 
ginia and  the  West  Indies,  fishing,  seal  fishing  on 
the  Isle  of  Sable,  and  lumbering.  These  indus- 
tries all  prospered.  In  1643  the  crop  failed,  and 
corn  was  sold  only  for  ready  money  or  for  cattle, 
at  1 2d.  more  per  bushel  than  for  cash. 

In  1648  it  was  necessary  to  order  that  only 
such  peag  as  was  unbroken  and  of  good  color 
should  pass— legal  tender  up  to  I2d. 

In  1649  the  colony  treasurer  was  forbidden  to 
take  peag.  The  inhabitants  began  to  reject  it,  but 
the  court  then  ordered  that  peag  should  be  legal 
tender  for  40s.,  the  white  at  eight  and  the  black 
at  six  for  a  penny.  Disputes  arising  about  the 
barter  currency  for  taxes,  three  appraisers  were 
provided  for,  one  to  be  chosen  by  the  treasurer, 
the  second  by  the  owner,  and  the  third  by  the 
marshal. 


HISTORY  OF  AMERICAN  CURRENCY.       IT 

THE  "PINE-TREE"  COINAGE. 

Coin  was  now  coming-  in  freely  by  the  trade 
with  the  West  Indies.  The  buccaneers  also 
spent  a  great  deal  of  their  booty  in  the  colonies, 
but  it  all  just  as  steadily  went  out.  In  1652 
Massachussets  set  up  a  mint  at  Boston  to  coin 
this  metal  and  try  to  keep  it  in  circulation. 
They  coined  shillings,  sixpences,  and  three- 
pences, and  continued  to  do  so  for  many  years, 
but,  as  it  was  a  breach  of  the  prerogative  to  coin, 
they  dated  all  the  coins  1652.  The  coins  were 
to  be  of  sterling  alloy,  \\  fine,  and  the  shilling 
worth  iod.  sterling.  The  mint  master  had  I5d. 
in  20s.  for  coining.  As  silver  was  worth  5s.  2d. 
sterling  per  oz.,  if  the  New  England  shillings  had 
been  equal  to  iod.  sterling  each,  silver  should 
have  been  worth  6s.  2^d.  New  England  currency 
per  oz.,  but  as  the  mint  master  kept  I5d.  out  of 
every  20s.,  silver  was  worth  6s.  yd.  New  England 
currency  per  oz.,  if  the  coin  was  up  to  its  own 
standard.  It  would  therefore  have  been  22  per 
cent,  worse  than  sterling.  The  English  Mint  de- 
clared it  not  of  even  weight  or  fineness,  and  it 


12      HISTORY  OF  AMERICAN  CURRENCY. 

was  taken  in  England  only  at  25  per  cent,  dis- 
count. The  normal  rate,  therefore,  was  6s.  8d. 
per  oz.  The  law  forbade  exportation  on  penalty 
of  forfeiting  all  visible  estate.  Of  course  this  re- 
strained but  it  did  not  prevent  it.  This  currency, 
known  as  the  "  pine-tree "  currency,  forms  the 
standard  by  which  calculations  were  made  from 
this  time  on. 

Meantime  the  barter  currency  was  continued, 
and  another  act  passed  in  1654  provides  that  all 
contracts  in  kind  shall  be  so  satisfied.  In  1655,  a 
constable  brought  cattle  to  the  treasurer  for  taxes 
which  were  so  poor  that  he  would  not  take  them. 
In  1657  another  prays  for  relief  because,  having 
taken  boards  for  taxes,  the  treasurer  would  not 
allow  him  as  much  as  he  allowed  for  them.  In 
1658  it  was  ordered  that  no  man  should  pay 
taxes  in  "lank"  cattle.  In  fact  the  barter  cur- 
rency continued  general. 

In  1655  the  colony  accounts  allow  for  £i>5  10s. 
peag  burned  with  the  treasurer's  house,  and  con- 
tain an  entry  of  eighteen  strings  of  peag  at  six  a 
penny.* 

*  For  this,  and  many  other  citations  from  the  Colonial  Records,  I  am  in- 
debted to  Felt's  Mass.  Currency. 


HISTORY  OF  AMERICAN  CURRENCY.       13 

Accordingly,  the  silver  money  no  sooner  ap- 
peared than  it  was  either  smuggled  out  of  the 
country  or  clipped.  The  principle  laid  down  by 
Sir  Thomas  Gresham  in  Queen  "Elizabeth's  time, 
that  a  better  and  a  worse  currency  cannot  circu- 
late together,  but  that  the  worse  will  drive  out 
the  better,  was  the  only  secret.  If  the  better 
currency  could  not  be  exported,  it  was  clipped 
down  to  the  rate  of  the  inferior  currency,  or 
rather  below  it,  in  order  to  be  on  the  safe  side, 
and  pay  rather  less  than  more  than  one  need.* 

The  silver  which  came  to  the  colony  consisted 
for  the  most  part  of  Spanish  pillar  coins.  On 
account  of  the  heavy  mint  charges  these  were  not 
taken  to  the  mint.  They  were  not  allowed  to 
be  circulated.  The  dollar,  or  piece  of  eight,  was 
worth  4s.  6d.  sterling,  or  6s.  New  England  cur- 
ency.  In  1672  a  law  was  passed  allowing  these 
pieces  to  circulate  at  6s.  and  other  pieces  in 
proportion.  In  1675  the  mint  was  leased  again, 
in  spite   of  prohibitions  from  England.      In   the 

*  In  1S73  tae  United  States  coined  a  "  trade  dollar  "  with  the  purpose 
of  getting  a  share  of  the  China  banking  and  exchange  business.  The  project 
was  in  every  way  fallacious,  but  the  dollars  were  made  worth  $1.03  in  gold, 
and,  coming  into  circulation  in  Nevada,  were  clipped. 


I4      HISTORY  OF  AMERICAN  CURRENCY. 

same  year,  25  per  cent,  discount  on  barter  taxes 
was  allowed  for  cash,  and  afterwards  50  per  cent. 
In  the  same  year,  it  was  provided  that,  instead  of 
transporting  barter  payments  of  taxes  to  and 
from  the  treasury,  the  transfers  should  be  made 
by  paper  orders.  Meantime,  the  coin  was  sent 
to  England  and  to  the  other  colonies,  and  was 
extremely  scarce  in  Massachusetts. 

In  1686  a  bank  was  proposed,  to  issue  notes. 
Its  history  is  obscure,  and  though  it  seems  to 
have  made  issues,  they  soon  disappeared.  An- 
clros  stopped  the  mint  about  1688.  It  formed  one 
of  the  chief  charges  against  the  colony  on  account 
of  which  the  charter  was  revoked  in  1691. 

THE    FIRST    EXPEDITION   AGAINST  CANADA, 
AND    PAPER  MONEY. 

In  1690  an  expedition  was  fitted  out  against 
Canada,  the  payment  for  which  was  to  come  from 
the  booty.  It  came  back  not  only  without 
booty,  but  in  great  misery.  The  soldiers  were 
clamorous  for  pay,  and  it  was  to  satisfy  their  de- 
mands that  the  first  paper  money  was  issued. 
This     expedition     cost     the     colony     ^50,000. 


/      HISTORY  OF  AMERICAN  CURRENCY.       jg 

£y,ooo  were  issued  in  notes  from  5s.  to  £5,  re- 
ceivable for  taxes,  and  for  goods  paid  into  the 
treasury  for  taxes. 

Sir  William  Phipps  tried  to  sustain  the  paper  by 
giving  coin  for  some  of  it,  but  the  soldiers  disposed 
of  it  at  one-third  discount.  The  issues  were  lim- 
ited to  ,£40,000,  and  ;£  10,000  in  the  treasury  were 
ordered  burned  in  169 1.  In  1692  it  was  ordered 
that  the  bills  be  received  at  5  per  cent,  advance 
over  coin  at  the  colonial  treasury,  and  the  Court 
promised  to  redeem  them  in  money  within  twelve 
months.  This  kept  the  paper  at  par  for  twenty 
years.  In  the  same  year  legal  interest  was  re- 
duced to  6  per  cent.  The  barter  currency  now 
ceased  for  a  time,  or  at  least  became  less 
common.  Felt  and  Bronson  both  quote  Madam 
Knight's  letter  that,  in  Connecticut,  there  were 
four  prices  :  "  pay,"  "pay  as  money,"  "money," 
and  "  trusting."  The  merchant  asked  his  cus- 
tomer how  he  would  pay  before  fixing  the  price. 
"Pay"  was  barter  at  the  government  rates. 
"Money"  was  Spanish  or  New  England  coin, 
also  wampum  for  change.  "  Pay  as  money"  was 
barter  currency  at  prices  K  less  than  the  govern- 


X6      HISTORY  OF  AMERICAN  CURRENCY. 

ment  rates.  " Trusting''  was  an  enhanced  price, 
according  to  time.  A  sixpenny  knife  cost  I2d. 
in  pay,  8d.  in  pay  as  money,  and  6d.  in  coin. 

Paper  was  now  issued  to  pay  the  annual  charges 
of  the  colony  of  Massachusetts,  but  it  was  also 
drawn  in  by  taxes,  and  it  does  not  appear  that 
the  amount  in  circulation  at  any  one  time 
was  excessive.  In  1702,  money  being  scarce, 
taxes  slowly  paid,  and  government  affairs  hin- 
dered, ,£10,000  were  issued,  secured  on  the  im- 
port and  excise,  and  ,£6,000  taxes  were  voted. 
By  this  tax  all  the  bills  out  were  to  be  withdrawn 
and  destroyed.  In  1704  a  royal  proclamation 
fixed  the  value  of  Spanish  and  other  foreign 
coins,  not  at  sterling  rates,  but  apparently  on  the 
basis  of  the  New  England  coinage.  Little  heed 
was  paid  to  it.  The  current  rates  of  the  coins 
obeyed  other  than  royal  laws. 

SECOND     EXPEDITION     AGAINST     CANADA- 
DEPRECIATION 

In  1709,  another  expedition  against  Canada 
being  intended,  ,£30,000  in  bills  of  credit  were 
issued,  and  ,£10,000  of  the  old  were  reissued.  The 


HISTORY  OF  AMERICAN  CURRENCY.       17 

preparations  dragged  on  for  two  years,  and,  in 
171 1,  ;£  1 0,000  more  were  issued  to  pay  military 
expenses.  New  Hampshire,  Rhode  Island,  Con- 
necticut, New  York,  and  New  Jersey  joined  in  this 
expedition,  and  now  began  to  issue  bills  of  credit. 
The  Massachusetts  bills  had  hitherto  been  held 
close,  and  provisions  for  redemption  by  taxes  in 
a  year  or  two  had  always  been  made.  They  had 
been  put  out  in  payment  of  government  ex- 
penses, and  had  thus  been  a  kind  of  exchequer 
bills. 

In  1709  the  time  for  redemption  was  set  at  4 
years;  in  17 10  at  5  years;  in  171 1  at  6  years; 
this  injured  the  credit  of  the  bills  at  the  same 
time  that  they  became  redundant.  The  depreci- 
ation now  began.  The  paper  was  legal  tender, 
its  acceptance  being  enforced  from  time  to  time 
by  more  and  more  stringent  enactments. 

COLMANS  BANK. 

The  mystery  of  banking  was  now  attracting 
attention  the  world  over.  The  Land  "Bank  in 
England  about  1685,  the  Austrian  enterprises  of 
1700,  John    Law's  scheme   of   171 5,  the  South 


!8      HISTORY  OF  AMERICAN  CURRENCY. 

Sea  Company  founded  in  171 1,  bear  witness  to 
it.  The  Massachusetts  people  were  not  behind 
the  age.  In  1715  John  Colman  and  others  pro- 
posed a  bank  based  on  land  and  issuing  notes. 
They  proposed  to  build  a  bridge  over  Charles 
river,  which  was  scouted  as  impracticable.  The 
Council  (upper  house  of  the  General  Court,  al- 
ways conservative)  forbade  them  to  make  public 
proposals  or  print  notes  until  the  General  As- 
sembly could  act  on  their  plans. 

LOAN  BANK. 

There  was  a  great  clamor  for  more  paper 
money  of  some  sort,  and  those  who  opposed  all 
paper  joined  those  who  opposed  the  Bank  in  car- 
rying a  scheme  for  a  public  issue.  This  was  the 
first  of  the  loan  banks  *  which  were  created  in 
nearly  if  not  quite  all  the  colonies  before  the  Rev- 
olution.    In  the  process  of  time  certain  new  de- 

*  "  Bank,"  as  the  word  was  used  before  the  Revolutionary  War,  meant 
only  a  batch  of  paper  money,  issued  either  by  the  government  or  a  corpor- 
ation. The  impression  seems  to  have  remained  popular,  that  the  essential 
idea  of  a  bank  is  the  issuing  of  notes.  Gouge,  accepting  this  definition, 
assailed  all  "  banking."  The  notes  issued  in  banks,  or  masses  as  loans, 
were  pure  paper  money,  and  may  be  distinguished  from  the  Treasury 
notes  issued  for  the  current  expenses  of  government. 


HISTORY  OF  AMERICAN  CURRENCY.         I9 

velopments  were  added,  which  were  supposed  to 
perfect  the  system.  To  take  one  of  the  most 
perfect  specimens,  which  enjoyed  the  approval  of 
Franklin,*  and  which  was  made  in  Pennsylvania 
in  1723,  the  plan  was  as  follows:  the  issue  was 
for  ,£15,000,  put  in  the  hands  of  commissioners 
in  each  county,  according  to  the  taxable  assess- 
ment. The  commissioners  loaned  the  bills  at  5 
per  cent,  on  mortgage  of  land.  The  loan  was  for 
16  years,  payable  TV  annually,  and  the  interest 
was  to  defray  the  expenses  of  government.  In- 
stalments repaid  during  the  first  10  years  of  the 
period  were  to  be  loaned  out  again  only  for  the 
remainder  of  the  period. 

Rhode  Island  was  the  most  unfortunate  of  all 
the  colonies  in  her  currency  legislation.  She 
kept  peag  longer  than  any.  of  the  others,  and 
plunged  into  paper  issues  more  recklessly  than 
any.  The  loan  bank  system  she  tested  to  the 
bitter  end. 


*  The  great  philosopher  was  not  unbiassed  in  his  judgment.  He  printed 
the  bills,  having  written  a  pamphlet  in  favor  of  them,  and  he  says,  "  It  was 
a  very  profitable  job  and  a  great  help  to  me."  Looking  back  upon  it 
later,  lie  argues  that  it  was  a  good  thing,  "  though  I  now  think  there  are 
limits  beyond  which  the  quantity  may  be  hurtful." — Works,  II.  254. 


20      HISTORY  OF  AMERICAN  CURRENCY. 

The  first  "bank"  in  that  colony  was  for 
^30,000,  issued  in  1715,  for  10  years.  In  1728 
the  time  was  extended  to  13  years,  and  then  10 
years  more  were  allowed  for  the  repayment,  with- 
out interest  beyond  the  first  13  years.  In  1721  a 
second  bank  was  issued  of  ^40,000  for  5  years, 
extended  in  1728  to  13  years,  interest  payable  in 
hemp  or  flax.  It  was  intended  to  act  as  a 
bounty  on  those  articles.  In  1631  the  same  col- 
ony laid  a  bounty  on  flax,  hemp,  whale  oil,  whale- 
bone, and  codfish.* 

As  this  system  of  public  loans  is  now  ad- 
vocated by  the  so-called  "  labor-reformers,"  it 
is  especially  worth  while  to  know  that  it  has 
been  subjected  here  to  a  full  experiment,  and 
what  its  results  were.  Hutchinson  says  that  the 
people  of  Massachusetts  must  have  wondered 
that  no  one  had  before  hit  upon  this  marvellous 
expedient  for  paying-  the  expenses  of  govern- 
ment. The  persons  who  obtained  loans  in 
the  ninth  and  tenth  year  of  the  bank  period, 
complained  that  they  must  pay  back  in  seven  or 

*  Potter,  R.  I.  Paper  Money  in  Phillips'  Colon,  and  Contin.  Paper  Cur- 
rency, I.  100. 


HISTORY  OF  AMERICAN  CURRENCY.       21 

six  years,  whereas  others  enjoyed  the  loan  for  six- 
teen years.     The  banks  were  accordingly  "  con- 
tinued," or  renewed  continually.     New  claimants 
who     desired    to    come    under    this    shower    of 
wealth  clamored  for  new  banks   on  the  ground 
of  " justice"   and   " equality."     All  who  had  re- 
ceived loans  joined   as  a  compact  body  in  favor 
of  further  issues.     All  new  issues  to  others  de- 
preciated the  currency,  and  enabled  them  to  pay 
back   more  easily.       However,    they  did  not  in 
many  cases  pay  at  all,  either  principal  or  inter- 
est.    Having  accumulated  large  arrears  they  de- 
camped,   and,    when    process    issued,    could  not 
be  found.     The  mortgaged  estates  were  found 
entangled  in  inextricable  confusion.     The  legis- 
latures, composed  largely  of  men  in  the  system, 
would  allow  no  extreme  measures.     Foreclosures 
were    rare,    and    did    not   pay  for   the    trouble 
and  excitement  they  caused.     The  paper  became 
a  political   issue,   and   Douglas  says  the  parties 
were  no  longer  Whig  or  Tory,  but  Creditors  and 
Debtors — the  latter  in  the  majority.     Felt  says 
that  some  of  the  loans  of  17 14  in  Massachusetts, 
made  for  five  years,  were  out  over  thirty  years. 


22      HISTORY  OF  AMERICAN  CURRENCY. 

In  1 71 5  there  was  a  petition  from  Boston  mer- 
chants for  more  paper,  which  was  laid  over. 

Governor  Shute  recommended  the  Assembly 
to  take  measures  to  revive  the  low  state  of  trade. 
They  issued  ,£100,000  of  bills,  "because  bills 
were  scarce."  These  were  issued  on  loan.  Sil- 
ver rose  to  12s.  per  oz. 

South  Carolina  had  issued  bills  in  1712  for 
war  expenses.  "This  emission  fell  a  third  the 
first  year,  a  half  the  second,  and  continued  to 
depreciate." 

Felt  quotes  a  writer  who  said  :  "  The  evils 
of  litigation  abound.  People  of  estates  cannot 
raise  money,  unless  they  dispose  of  them  at  half 
their  value.  Individuals  depending  on  their 
labor  are  forced  to  take  for  their  toil  from  one- 
half  to  two-thirds  in  goods,  while  their  creditors 
imperiously  demand  cash  of  them.  The  private 
bank*  does  not  receive  encouragement  from  the 
legislative  authorities.  ^50,000  ought  to  be  laid 
out  for  building  a  bridge  over  Charles  river,  so 
that  workmen  might  be  employed   and  currency 

*  There  are  hints  that  it  had  made  issues. 


HISTORY  OF  AMERICAN  CURRENCY.       23 

enlarged,  as  well  as  the  public  accommodated, 
and  ruin  will  come  unless  more  bills  of  credit 
are  emitted."     This  was  in  17 19. 

In  1720  trade  was  stagnant,  and  there  was  a 
great  cry  for  more  bills.  Let  it  be  ob- 
served how  this  complaint  is  heard  again 
every  four  or  five  years,  although  the  amount 
of  paper  was  continually  increasing.  It  is 
the  best  instance  in  history  of  the  way  in  which 
a  country  ''grows  up"  to  any  amount  of  cur- 
rency. Here  was  a  sparse  population  in  a  new 
country  with  untouched  resources,  and  it  seemed 
to  them  necessary  to  have  recourse  to  artificial 
issues  of  currency  to  "  make  business  brisk ;  " 
to  get  up  enterprises  for  the  sake  of  "  making 
work  ;"  and  to  lay  bounties  on  products  in  order 
to  enable  the  people  to  carry  on  production.  The 
distress  was  real,  but  it  came  from  turning  their 
backs  on  what  nature  offered  them  gratuitously, 
and  violating  the  laws  by  which  they  might  have 
profited  by  these  gifts. 

The  commissioners  of  the  New  England  colon- 
ies  passed  a  resolution  deprecating  further  issues 
of  paper,  but  it  had  no  effect.     Widows,  orphans, 


24      HISTORY  OF  AMERICAN  CURRENCY. 

and  salaried  men  suffered  greatly  from  the  de- 
preciation. Hutchinson,  referring  to  the  tempta- 
tion to  trustees,  says :  "  The  influence  which  a 
bad  currency  has  on  the  morals  of  a  people  is 
greater  than  is  generally  imagined.  Numbers 
of  schemes  for  public  and  private  emissions  were 
proposed  as  remedies.  The  only  effectual  one, 
the  utter  abolition  of  the  bills,  was  omitted." 
Expeditions  were  favored  for  the  purpose  of 
bringing  about  issues  of  paper,  and  public  works 
were  advocated  for  the  same  reason.  In  1721 
Massachusetts  issued  ;£  100,000,  and  forbade 
buying  and  selling  silver.  Hutchinson  says : 
"  Such  an  act  can  no  more  be  executed  than  an 
act  to  stop  the  ebbing  and  flowing  of  the___sea." 
^500  in  paper  were  now  equal  to  ^180  sterling. 

In  1720  Parliament  passed  an  act  forbidding 
any  companies  to  carry  on  banking  without  a 
charter. 

In  the  same  year  the  treasury  of  Massa- 
chusetts ceased  to  allow  5  per  cent,  premium  on 
bills.  £5,000  were  issued  in  this  year,  redeem- 
able from  1726  to  1730. 

The  royal  instructions  forbade  the  governor  to 


HISTORY  OF  AMERICAN  CURRENCY.       25 

sign  any  acts  for  emitting  bills,  and  the  history 
of  the  next  twenty  years  is  a  story  of  long 
conflicts  between  successive  governors  and  the 
Lower  House  on  this  question.  Governor  Shute 
gave  it  up  and  went  home.  Lt.-Gov.  Dummer 
signed  a  bill  issuing  ,£30,000  in  1724. 

In  1727  Wood's  patent  for  coining  pennies  of 
English  value  was  issued.  They  were  to  be  so 
rated  in  the  paper  as  to  circulate.  They  were 
very  unpopular  because  they  reflected  on  the 
paper  and  marked  its  depreciation.  In  this  year 
,£50,000  were  issued  to  help  redeem  the  issue 
of  1 716.  On  this  ground  Dummer  signed  it. 
The  council  also  wanted  to  redeem  the  ,£30,000 
issue  of  1724,  but  the  House  would  not  agree. 
In  1728  the  redemption  of  the  ,£100,000  loan 
being  enforced  by  orders  from  England,  ,£60,- 
000  more  were  allowed,  "  because  bills  were 
scarce." 

Hutchinson  comments  on  this  :  "  It  would  be 
just  as  rational,  when  the  blood  in  the  human 
body  is  in  a  putrid  and  corrupt  state,  to  in- 
crease the  quantity  by  luxurious  living,  in  order 
to    restore    it    to    health."     Interest    was    now 


26      HISTORY  OF  AMERICAN  CURRENCY. 

charged  on  the  loan  at  4  per  cent.,  because  low 
interest  encourages  business.  The  natural  rate 
was  8  per  cent.  A  great  speculation  in  unoc- 
cupied lands  had  sprung  up  in  the  last  year. 
Enough  new  towns  were  laid  out  for  the  whole 
existing  population. 

During-  the  administrations  of  Burnet  and 
Belcher  the  war  over  paper  issues  went  on,  but 
the  restriction  was  enforced  to  issue  only  for  gov- 
ernment expenses.  The  injunction  was  also  to 
reduce  the  outstanding  amount  to  ,£30,000,  but 
this  was   not  obeyed. 

BANKS. 

The  colony  being  no  longer  allowed  to  issue, 
bank  projects  revived.  As  a  concession,  ^76,500 
were  allowed  in  1733  for  public  expenses,  and 
the  year  1741  was  fixed  as  a  terminus  for  all  out- 
standing issues.  This  year  (1733)  was  one  °f 
great  distress  throughout  New  England.  Trade 
was  stagnant  and  "money  scarce."  Rhode 
Island  issued  ,£100,000.  The  Boston  merchants 
agreed  not  to  receive  them,  and  themselves 
issued  ^"110,000,  redeemable  in  silver  at  19s.  per 


HISTORY  OF  AMERICAN  CURRENCY.       2J 

oz.,  one  tenth  of  the  issue  each  year  for  ten 
years,  without  reissue.  Some  of  them  broke  the 
engagement  and  received  the  Rhode  Island  bills, 
and  all  the  notes  flowed  in  together.  Silver 
rose  to  27s.  per  oz.  The  merchants'  notes  were 
hoarded. 

In  1734  Governor  Belcher  recommended  the 
withdrawal  of  paper  money  and  bounties  on 
hemp  and  naval  stores,  so  as  to  turn  the  balance 
of  trade. 

In  1737  "new  tenor"  bills  were  issued,  to 
circulate  at  the  rate  of  one  for  three  of  the  old. 
Felt  quotes  an  act  showing  that  a  system  of 
counterfeiting  had  grown  up  by  which  a  counter- 
feit part  was  pasted  on  a  mutilated  bill,  raising 
its  denomination.  ^170,000  of  outstanding  bills 
must,  J)y  law,  be  redeemed  before  1742. 

THE  LAND  BANK. 

In  1739  the  Land  Bank  scheme  was  revived. 
The  scheme  was  this:  a  number  of  land  owners 
formed  a  company  and  mortgaged  their  estates 
to  it  for  its  notes,  giving  3  per  cent,  per  annum 
interest    in    merchandise,    and    5    per    cent,    per 


2 8      HISTORY  OF  AMERICAN  CURRENCY. 

annum  on  the  principal  in  the  same  currency.  A 
mechanic,  with  two  sureties,  might  have  ^ioo 
stock.  The  notes  were  payable  after  twenty 
years  "  in  manufactures  of  the  province."  The 
preamble  of  the  schedule  of  this  bank  recites  that 
it  is  organized  "in  order  to  redress  the  existing 
circumstances  which  the  trade  of  this  province 
labors  under  for  want  of  a  medium."  This  bank 
was  the  most  prominent  factor  in  the  political 
movements  of  the  next  ten  years,  and  even  later 
it  turns  up,  from  time  to  time,  a  cause  of  perplexity 
and  distress  to  the  government  and  the  surviving 
stockholders. 

THE  SPECIE  BANK. 

Another  bank  was  proposed  to  counteract  the 
Land  Bank.  It  was  called  the  Specie  Bank,  and 
was  to  issue  ,£120,000  in  notes  redeemable  in 
fifteen  years,  in  silver,  at  20s.  per  oz.  Both 
went  into  operation,  but,  in  1740,  Parliament 
declared  the  old  Joint  Stock  Companies'  Act, 
passed  after  the  South  Sea  bubble  (1720),  to  be 
of  force  in  the  colonies.  Both  banks  were  there- 
fore forced  to  wind  up. 


HISTORY  OF  AMERICAN  CURRENCY.       2g 

The  Land  Bank  resisted  its  fate  by  social  and 
political  intrigues,  and  became  a  political  issue 
between  its  friends  and  its  enemies.  The  large 
merchants  had  refused  its  notes,  but  the  small 
dealers  had  taken  them,  and  ,£35,582  were  out 
For  a  thorough-going  application  of  the  paper 
theory,  nothing  has  ever  been  proposed  any- 
where, much  less  put  in  operation,  which  could 
equal  this.  A  note  for  $1  payable  twenty  years 
hence  in  gold  without  interest,  when  interest  is  3 
per  cent,  is  worth  55  cents,  or,  if  interest  is  6 
per  cent,  31  cents.  If  payable  in  any  one  of  a 
dozen  commodities  it  is  payable  in  that  one  which 
twenty  years  hence  may  be  the  cheapest.  At 
what  rate,  then,  ought  a  man  who  to-day  gives 
wheat  for  the  note  to  make  the  exchange  ? 
These  notes  were  based  on  nothing,  floated  on 
nothing,  and  represented  nothing  definable.  The 
system  of  money  which  consists  in  "  basing," 
"floating,"  and  "representing"  was,  therefore, 
here  in  perfection. 

The  governor  made  war  on  this  bank  with 
all  his  energy,  as  unlawful  and  pernicious,  con- 
trary to  the  act  of  Parliament  and  to  his  instruc- 


30      HISTORY  OF  AMERICAN  CURRENCY. 

tions.  Finding  that  some  civil  and  military 
officers  were  engaged  in  it,  he  removed  them. 
This  called  forth  a  protest  from  Samuel  Adams 
and  John  Choate,  as  an  invasion  of  personal 
liberty,  there  can  be  no  doubt  that  the  bitter- 
ness engendered  by  this  conflict  was  one  great 
cause  of  the  Revolution.  Two  great  economic 
errors  were  amongst  the  causes  of  that  war. 
One,  the  attempt  of  the  colonies. to  issue  paper 
in  which  they  were  in  error  as  to  the  question 
of  political  expediency ;  the  other,  the  attempt  to 
carry  out  the  u  colonial  system,"  by  which  the 
colonies  were  used  as  means  of  aggrandizing  the 
mother  country,  in  which  the  latter  was  at  fault. 
There  is  no  tribunal  to  decide  such  questions. 
They  work  themselves  out  in  history. 

The  instructions  forbidding"  the  governor  to 
allow  paper  issues  contained  one  exception.  He 
might  issue  for  the  expenses  of  government. 
This  was  the  gap  through  which  the  issues  were 
still  continued,  though,  more  moderately.  In 
1 74 1  all  outstanding  notes  were  to  be  cancelled. 
As  that  year  approached,  it  was  found  impracti- 
cable to  call  in  all  in  one  year  by  tax,  no  steps  in 


HISTORY  OF  AMERICAN  CURRENCY.      ^j 

that  direction  having  been  taken.  Taxes  were 
provided  for  retiring  them  in  1741,  '2,  and  '3. 
At  the  same  time  the  governor  was  allowed  to 
approve  issues  beyond  ,£30,000  for  expenses, 
to  tide  over  the  withdrawal  of  the  old.  A  new 
set  of  bills  was  now  issued  to  circulate  at  the 
"ideal"  rate  of  6s.  8d.  per  oz.  silver.  These 
now  became  the  "  new  tenor/'  and  those  of  1737, 
"  middle  tenor."  Subsequently  it  became  neces- 
sary to  distinguish  "new  tenor  first,"  and  "  new 
tenor  second."  Similar  stratification  existed  in 
the  paper  of  Rhode  Island  and  Connecticut.  If 
the  new  tenor  bills  depreciated  they  were  to  pass 
at  current  rates,  that  is,  were  not  legal  tender  for 
their  face.  The  depreciation  was  to  be  ascer- 
tained and  published  by  commissioners,  but  these 
persons  were  restrained  by  public  opinion  from 
ever  stating  the  depreciation  at  its  true  amount. 
One  commissioner  who  did  rate  it  truly  was 
overwhelmed  by  a  storm  of  abuse.  The  new 
tenor  bills  fell  to  7s.  9d.  per  oz.,  but  were 
hoarded.  In  1741  old  tenor  were  at  29s.  per 
oz.  ;  new  tenor  Massachusetts,  9s.  8d. ;  new 
tenor  Connecticut,  8s. ;  new  tenor  Rhode  Island, 


X2       HISTORY  OF  AMERICAN  CURRENCY. 

6s.  9d.  ;  old  Specie  Bank  of  1733,  one-thud 
better  than  colony  bills;  Specie  Bank  of  1740, 
issued  at  20s.  per  oz.,  were  at  that  rate  ;  Land 
Bank  not  quotable.  Mr.  Hutchinson,  the  histo- 
rian, and  subsequently  governor  of  Massachusetts, 
very  wisely  advised  Governor  Belcher  to  try  to 
put  down  the  Land  Bank  in  some  other  way  than 
by  invoking  the  authority  of  Parliament.  Colonial 
independence  was  enlisted  on  the  side  of  the 
bank,  and  insurrection  was  feared. 

In  1743  Massachusetts  proposed  to  the 
other  New  England  colonies  to  appoint  commis- 
sioners to  agree  on  joint  action  for  doing  away 
with  the  bills.  They  refused  to  do  so.  "  Money" 
was  now  scarce  a ;  ever  again,  the  better  kinds  of 
paper  being  hoarded,  and  only  the  worst  paper 
of  vall  the  colonies  circulating  in  any.  The 
governor  of  Massachusetts,  in  1744,  said  that  of 
,£400,000  Rhode  Island  bills  in  circulation 
^380,000  were  in  Massachusetts.  The  people 
of  the  latter  colony  had  lost  ,£25,000  on  this  sum 
in  nine  months.  In  1744  the  amount  of  bills  in 
Massachusetts  was  scarcely  diminished. 


HISTORY  OF  AMERICAN  CURRENCY. 


33 


EXPEDITION  AGAINST  LOUISE OURG. 

The  governor  now  took  it  into  his  head  to 
capture  Louisbourg,  on  Cape  Breton,  from  the 
French.  The  New  England  colonies  joined  in 
this  enterprise.  Nothing  more  was  heard  of  the 
royal  instructions,  but  bills  were  issued  as  they 
were  needed  to  prepare  this  expedition.  It  was 
popular,  as  all  expeditions  against  the  French 
were  popular.  It  appealed  to  the  love  of  advent- 
ure— always  great  in  a  new  country,  and  it  met 
the  wishes  of  those  who  wanted  more  paper. 

All  the  authorities  agree  that  the  enterprise 
was  wild  and  reckless,  and  that  it  only  succeeded 
by  a  succession  of  strange  and  lucky  accidents. 
However,  succeed  it  did  ;  the  town  was  captured, 
and  the  colonies  were  greatly  elated  by  their 
military  glory. 

As  a  result  of  this  expedition  the  paper  issues 
of  the  colonies  in  1749  reduced  to  old  tenor, 
were : 

Massachusetts ^2,466,712 

Connecticut 281,000 

Rhode  Island 550,000 

New  Hampshire 450,000 


>i  * 


34      HISTORY  OF  AMERICAN  CURRENCY. 

RESUMPTION  IN  MASSACHUSETTS. 

Parliament  voted  to  ransom  Louisbourg  from 
the  colonies.  The  sum  coming  to  Massachusetts 
was  ^138,649  sterling,  which  at  eleven  for  one, 
the  ruling  exchange,  would  nearly  cancel  the 
paper.  Hutchinson  proposed  that  they  should 
ask  Parliament  to  ship  to  them  their  share  of  the 
payment  in  silver  dollars  and  copper  coins,  and 
that  these  should  be  used  to  cancel  the  paper  as 
far  as  they  would  go,  the  rest  to  be  called  in  by 
tax.  After  considerable  opposition  this  course 
was  adopted.  The  silver  was  sent  over  and  ex- 
changed. Prices  were  adjusted  to  this  new 
measure,  and  the  silver  remained  in  circulation 
when  it  no  longer  had  a  meaner  rival.  The 
"  shock"  which  was  apprehended  did  not  occur. 
The  only  shock  wras  to  Rhode  Island  and  New 
Hampshire,  who  found  their  trade  transferred  to 
the  "  silver  colony/'  and  their  paper  suddenly  and 
heavily  depreciated.  The  West  India  trade  of 
Massachusetts  had  been  largely  done  through 
Newport.  It  was  now  transferred  to  Salem  and 
Boston      In   1752   a  Newport  merchant,  Joseph 


HISTORY  OF  AMERICAN  CURRENCY.      35 

Whipple,  who  was  deputy  governor  at  the  time, 
failed.  Failures  "had  been  almost  unknown  in 
Newport,"  and  Mr.  Whipple  was  constrained  to 
resign  his  office. 

The  apprehensions  of  loss  and  danger  from 
the  change  in  Massachusetts  led  to  some  demon- 
strations of  riot,  but  the  change  took  place  so 
quietly  and  easily  that  these  fears  were  not  real- 
ized and  the  tumult  subsided.  Trade  had  been 
immediately  before  (1749-50)  at  the  lowest  ebb. 
Ship-building  and  fisheries  had  declined,  and 
people  were  moving  away.  Trade  now  revived 
steadily  and  rapidly,  and  we  hear  no  more  of 
"scarcity  of  money"  until  the  next  violation  of 
the  laws  of  circulation. 

The  following  table  shows  the  depreciation  of 
Massachusetts  paper : 


1702, 
1706 

1713 
1716 
1717 
1722 


EX.  ON  LON- 

SILVER PER  OZ.  IN 

DON. 

THE  CURRENCY. 

S. 

d. 

•          135 

6 

toi 

7 

.          I50 

•          175 
225 

270 

8 

9 
12 

14 

3 

36      HISTORY  OF  AMERICAN  CURRENCY. 

EX.  ON  LON-  SILVER  PER  OZ.   IN 

LON.  THE  CURRENCY. 

S.  d. 

i  i2$ 340      18 

1730 380     20 

1737 500     26 

i74i 55o     28 

1749 I,IOO     60 

The  following  table  shows  the  depreciation  oi 
the  paper  of  the  several  colonies : 

1740  1748 

New  England 525  1,100 

New  York 160  190 

Pennsylvania 160  180  and  190 

Maryland 200  200 

North  Carolina 1,400  1,000 

South  Carolina 800  750 

Virginia 120  and  125 

Douglas,  though  bitterly  opposed  to  paper 
money,  opposed  violently  the  plan  of  Hutchin- 
son. His  own  history  shows  that  he  was  irasci- 
ble and  impracticable.  He  thought  the  measure 
too  sudden,  and  wanted  to  use  the  English  pay- 
ment by  drawing  bills  of  exchange  on  long  time 
and  selling  them  for  the  bills  of  credit.  If  a  con- 
traction had  been  practicable  it  ought  certainly  to 


HISTORY  OF  AMERICAN  CURRENCY.       3y 

have  been  gradual  and  careful,  but  this  was  out 
of  the  question  with  a  currency  sunk  to  T\  of  its 
denomination,  and  a  bankruptcy  could  not  be  too 
sharply  and  definitely  accomplished  when  re- 
solved upon. 

ACTION  OF  CONNECTICUT 

His  plan  was  followed  in  Connecticut,  the  bills 
being  drawn  at  three  years'  date,  and  the  conse- 
quence was  that  the  paper  was  not  withdrawn 
before  the  next  war  called  for  new  issues. 

ACTION  OF  RHODE  ISLAND. 

Rhode  Island  went  on  upon  the  paper  system. 
In  1750  the  paper-money  party  were  in  the  as- 
cendant, and  the  ninth  bank  was  issued  for 
,£25,000.  It  was  for  the  purpose  of  giving 
bounties  on  manufactured  wool,  and  whale  and 
cod  fisheries.  "In  June,  1751,  the  act  was 
amended.  The  bounties  were  abolished  ;  that  on 
manufactured  wool  as  being  displeasing  to  Eng- 
land, the  others  as  useless."  Rate  in  1750: 
Notes  of  ninth  bank,  6s.  9d.=i3s.  6d.  new  tenor 


38      HISTORY  OF  AMERICAN  CURRENCY. 

=54s.  old  tenor.  Rate  in  1757:  6s.  od.  of  ninth 
bank=i6s.  new  tenor=64s.  old  tenon  In  1756, 
new  bills  were  issued  at  6s.  8d.  per  oz.,  payable 
in  two  years,  called  "  lawful  money,"  and  some 
efforts  at  reform  began  to  be  made.  The  notes 
were  no  longer  legal  tender,  and  in  1763  a  scale 
of  depreciation  was  fixed  for  the  settlement  of 
old  debts  by  the  courts.  It  put  one  Spanish 
milled  dollar,  of  the  value  of  4s.  6d.  sterling,  at 
£y  in  old-tenor  notes  in  1763.* 

LEGAL-TENDER  PAPER  ABOLISHED. 

In  the  year  1751  Parliament  passed  an  act  for- 
bidding any  more  legal-tender  paper  issues,  and 
allowing  no  issues,  save  in  the  form  of  exchequer 
bills,  redeemable  by  taxes  in  a  year,  bearing  in- 
terest, or,  in  case  of  war,  similar  issues  redeema- 
ble in  four  years.  The  colonies  now  set  to  work 
earnestly,  though  with  only  partial  success,  as 
above  shown,  to  retire  their  old  issues. 

A  new  war  with  the  French  in  1756  involved 
them  once  more  in  war  expenditures,  and  bills  of 

*  See  Potter  /.  c,  and  Arnold's  Rhode  Island. 


HISTORY  OF  AMERICAN  CURRENCY.      39 

the  above  description  were  issued.  They  were 
of  small  denominations,  bore  interest,  and  circu- 
lated only  until  the  interest  accumulated  so  much 
as  to  make  them  worth  hoarding.  Remittances 
were  continually  received  from  England  to  par- 
tially reimburse  the  colonies  for  their  expenses, 
and  by  these  funds,  and  by  taxes,  the  bills  were 
redeemed  to  such  an  extent  as  to  save  them  from 
great  depreciation. 

Early  in  the  eighteenth  century  Virginia 
adopted  tobacco  as  a  currency.  It  was  depos- 
ited in  warehouses,  and  the  receipts  for  it  passed 
as  currency.  It  was  a  true  money,  but  not  a 
good  one,  as  it  naturally  fluctuated  considerably 
in  value.  In  1755  Virginia  issued  paper 
money.* 

North  Carolina  issued  paper  to  build  a  palace 
for  the  governor.  A  similar  project  was  started 
in  New  Jersey,  but  it  never  passed  the  legislat- 
ure. 

*  Phillips'  Colon,  and  Continent.  Paper  Money.     Vol.  I. 


4o      HISTORY  OF  AMERICAN  CURRENCY. 


DOUBIE  STANDARD  TRIED  IN  MASSACHU- 
SETTS—OTHER  COLONIAL  ISSUES. 

Scarcely  had  specie  come  into  circulation  in 
Massachusetts  when  it  was  found  that,  although 
the  remittance  had  been  in  silver,  gold  from  the 
West  Indies  began  to  stay  in  the  colony.  The 
question  of  making  it  legal  tender  as  well  as  sil- 
ver soon  be^an  to  be  agitated.  It  circulated  of 
course,  not  being  legal  tender,  at  its  weight. 
An  act  was  passed  in  1762  to  make  gold  legal 
tender  at  2H.  per  grain.  At  this  rate  it  was 
more  profitable  for  the  debtor  to  pay  in  gold  than 
in  silver.  The  currency  was  depreciated  five  per 
cent,  by  this  operation,  and,  as  Hutchinson  de- 
clared at  the  time  must  follow,  this  drove  sil- 
ver out  of  circulation.  Some  hints  also  show  that 
barter  currency  was  still  allowed  in  the  payment 
of  taxes.  Silver  now  became  scarce,  and  the 
next  stage  was  a  new  agitation  in  1767  for  paper 
money. 

In  1768  the  House  resolved  that  "in  order  to 
prevent  the  unnecessary  exportation  of  money,  of 
which  this  province   has  of  late  been   so  much 


HISTORY  OF  AMERICAN  CURRENCY.      47 

drained,"  they  will  do  without  foreign  superflui- 
ties, and  encourage  the  manufactures  of  this 
province.  The  same  doctrine  has  been  preached 
and  avowed  ever  since,  as  the  sum  and  essence  of 
political  economy,  but  it  has  been  a  signal  failure. 
The  colony  was  drained  of  money  (silver)  be- 
cause it  had  adopted  another  legal  tender,  gold, 
which,  though  the  best  money  for  large  exchan- 
ges, was  so  rated  that  it  was  the  cheapest  means 
of  payment.  It  alone  therefore  remained,  and  the 
other  metal  was  exported.  It  was  not,  however, 
exported  for  nothing,  and  no  resolutions  could 
make  the  people  desist  from  using  foreign  super- 
fluities which  came  back  to  pay  for  it.  The  same 
violation  of  coinage  laws  was  twice  repeated  under 
the  federal  constitution,  as  we  shall  see  below. 
In  the  same  year  (1768)  the  Massachusetts  Coun- 
cil petitioned  the  House  of  Commons  for  relief 
from  the  new  tax  laws,  pleading  the  great  scar- 
city of  money,  which  they  ascribe  to  the  balance 
of  trade  being  against  them. 

Mr.  Hickcox,  writing  on  the  New  York  paper 
money,*  says  that  the  colony  traded  in  1720  with 

*  Albany,  1866,  page  21. 


42       HISTORY  OF  AMERICAN  CURRENCY. 

Madeira,  the  West  Indies,  and  England.  He  ex- 
pressed still  more  explicitly  the  theory  underlying 
the  above  view  on  the  subject.  The  trade  "  to 
the  West  Indies  was  wholly  to  the  advantage  of 
New  York,  while  that  to  Madeira  was  to  our  loss, 
the  province  consuming  more  wine  from  thence 
than  could  be  purchased  with  its  commodities. 
The  money  imported  from  the  West  Indies  was 
not  sufficient,  however,  to  preserve  a  specie  cur- 
rency, a  large  amount  being  necessary  to  balance 
the  exchange  with  England." 

The  errors  involved  in  this  way  of  looking  at 
the  matter  were  most  clearly  exposed  in  connec- 
tion with  .he  "  Bullion  Report,"  and  will  be  found 
noticed  in  Chapter  II. 

In  1763  Parliament  declared  any  colonial  acts 
for  issuing  paper  money  void.  Franklin  wrote 
a  pamphlet  in  opposition  to  this  act.  He  said 
that  gold  and  silver  owe  their  value  chiefly  to  the 
estimation  in  which  they  happen  to  be  among  the 
generality  of  nations  and  the  credit  given  to  the 
opinion  that  they  will  continue  to  be  so  held. 
"  Any  other  well-founded  credit  is  as  much, an 
equivalent  as  gold  or  silver."    When  exchange  rose 


HISTORY  OF  AMERICAN  CURRENCY.      43 

he  thought  that  this  was  only  an  advance  in  ex 
change,  not  a  fall  in  paper.      In  1773  Parliament 
allowed  any  bills  issued  by  any  colony   to  be  a 
tender  at    its  treasury.     In   1774  Massachusetts 
was  out  of  debt. 

In  1775  representatives  of  the  colonies  of  Con- 
necticut and  Rhode  Island  met  the  Congress  ol 
Massachusetts  to  concert  measures  for  the  war. 

It  was  agreed,  as  their  money  was  paper  and 
they  could  not  offer  anything  else,  that  this  should 
be  allowed  to  pass  in  Massachusetts. 

7  CONTINENTAL  PAPER  MONEY. 

The  colonies  now  went  into  the  Revolutionary 
War,  many  of  them  with  paper  already  in  circu- 
lation, all  of  them  making  issues  for  the  expenses 
of  military  preparations.  The  Continental  Con- 
gress, having  no  power  to  tax,  and  its  members 
being  accustomed  to  paper  issues  as  the  ordinary 
form  of  public  finance,  began  to  issue  bills  on  the 
faith  of  the  "  Continent,"  Franklin  earnestly  ap- 
proving. The  first  issue  was  for  300,000  Spanish 
dollars,    redeemable    in    gold    or  silver,  in  three 


44      HISTORY  OF  AMERICAN  CURRENCY. 

years,   ordered   in   May  and    issued    in   August, 

I775- 

Paper  for  nine  million  dollars  was  issued  before 

any  depreciation  began.  The  issues  of  the  separ- 
ate colonies  must  have  affected  it,  but  the  popular 
euthusiasm  went  for  something.  Pelatiah  Web- 
ster,* almost  alone  as  it  seems,  insisted  on  taxa- 
tion, but  a  member  of  Congress  indignantly  asked 
if  he  was  to  help  tax  the  people  when  they  could 
go  to  the  printing-office  and  get  a  cartload  of. 
money.  In  1776,  when  the  depreciation  began, 
Congress  took  harsh  measures  to  try  to  sustain 
the  bills.  Committees  of  safety  also  took  meas- 
ures to  punish  those  who  "  forestalled  "  or  "  en- 
grossed," these  being  the  terms  for  speculators 
who  bought  up  for  a  rise.  The  tyranny  of  the 
government  was  of  course  only  a  stimulus  to  the 
private  committees.  It  is  natural  to  suppose  that 
malicious  and  criminal  persons  assumed  the  duty 
of  public  regulators,  and  committed  those  acts 
of  violence  and  wrong  which  equal  or  surpass 
anything  of  the  kind  under  any  despotism,  but 
such  an  error  as  a  legal-tender  act,  enforced  by 

*  Political  Essays.     Philadelphia,  1791. 


HISTORY  OF  AMERICAN  CURRENCY.      45 

pains  and  penalties,  is  responsible  for  the  second- 
ary evils  which  are  sure  to  flow  from  it.  Web- 
ster says  of  the  paper  :  "  We  have  suffered  more 
from  this  cause  than  from  every  other  cause  or 
calamity.  It  has  killed  more  men,  pervaded  and 
corrupted  the  choicest  interests  of  our  country 
more,  and  done  more  injustice  than  even  the  arms 
and  artifices  of  our  enemy."  The  enemy,  perceiv- 
ing the  terrible  harm  the  Americans  were  doing 
themselves,  thought  it  well  to  help  on  the  move- 
ment. They  counterfeited  the  bills  and  passed 
them  through  the  lines. 

At  the  end  of  1779  Congress  was  at  its  wits' 
ends  for  money.  Its  issues  had  put  specie  en- 
tirely out  of  reach,  and  the  cause  was  in  danger 
of  being  drowned  under  the  paper  sea. 

Webster  says  :  "  The  people  of  the  States  at 
that  time  had  been  worried  and  fretted,  disap- 
pointed, and  put  out  of  humor  by  so  many  tender- 
acts,  limitations  of  prices,  and  other  compulsory 
methods  to  force  value  into  paper  money,  and 
compel  the  circulation  of  it,  and  by  so  many  vain 
funding  schemes,  declarations  of  promises,  all 
which  issued  from  Congress,  but  died  under  the 


46       ^TSTORY  OF  AMERICAN  CURRENCY. 

mc.c  zealous  efforts  to  put  them  into  operation 
and  effect,  that  their  patience  was  all  exhausted. 
I  say  these  irritations  and  disappointments  had 
so  destroyed  the  courage  and  confidence  of  the 
people,  that  they  appeared  heartless  and  almost 
stupid  when  their  attention  was  called  to  any 
new  propositions." 

The  French  alliance  helped  more  by  giving 
means  of  procuring  loans  in  Europe  than  by  mili- 
tary assistance.  Congress  promised  to  limit  its 
issues  to  $200,000,000,  and  tried  a  new  form  of 
note  ;  also  loan  offices  and  lotteries.  Over  350,- 
000,000  were  issued  in  all,  but  it  is  doubtful  if 
more  than  200,000,000  were  out  at  any  one 
time. 

In  the  spring  of  1780  the  bills  were  worth 
two  cents  on  the  dollar,  and  then  ceased  to  cir- 
culate. Specie  now  came  into  circulation,  being 
brought  by  the  French,  and  also  that  expended 
by  the  English  passing  the  lines.  The  paper 
was  now  worth  more  for  an  advertisement  or  a 
joke  than  for  any  prospect  of  any  kind  of  re- 
demption. A  barber's  shop  in  Philadelphia  was 
papered  with  it,  and  a  do£,  coated  with  tar,  and 


HISTORY  OF  AMERICAN  CURRENCY.      47 

the  bills  stuck  all  over  him,  was  paraded  if^fche 
streets. 

On  account  of  the  peculiar  character  of  Ameri- 
can society,  there  are  few  family  traditions  of  the 
Continental  currency ;  but  th^contemporary  lit- 
erature shows  that  the  suffering  it  caused  was 
wide-spread  and  intense.  It  fell  most  heavily  on 
the  most  patriotic  and  most  helpless.  Phillips 
quotes  a  letter  addressed  by  a  lady  to  the 
'•■  Pennsylvania  Packet"  in  1779,  saying  that  her 
father  had  left  her  a  competence  which  her 
guardian  had  invested  in  real  estate  six  years 
before.  He  now  proposed  to  pay  her  fortune  in 
paper.      It  is  only  a  single  instance. 

"  The  gradual  depreciation  was  urged  as  a 
reason  why  the  notes  should  not  be  redeemed  at 
par.  It  was  said  to  operate  as  a  tax ;  as  a  most 
equal  tax,  because  it  acted  in  proportion  to  the 
amount  held.  The  rich  suffered  largely  on  their 
vast  sums ;  the  needy  but  slightly  on  their 
scanty  pittances.  How  fallacious  these  reason- 
ings, with  which  the  Congress  and  the  people 
solaced  themselves,  are,  must  be  apparent. 
Poor  consolation  it  was  to  those  who  had  been 


48      HISTORY  OF  AMERICAN  CURRENCY. 

bewared  confiding  in  the  honor  and  in  the  hon 
esty  of  their  country, to  hear  that  their  ruin 
had  merely  been  a  gradual  tax ;  to  know  that 
.from  the- operation  of  tender  laws  their  property 
had  been  taken  away  and  given  to  others  ;  to 
see  the  wealth  accumulated  by  the  dishonest 
multitudes  of  contractors  and  the  many  defraud- 
ers  of  that  unhappy  period,  and  to  feel  that  it 
had  been  plundered  from  their  own  coffers  for 
the  aggrandizement  of  such  people."  *  The 
trouble  is  that  the  government  cannot  make  a 
forced  loan  by  legal  tender  issues,  without  giving 
the  opportunity  for  private  individuals  to  take 
"  forced  loans  "  from  their  neighbors. 

"  If  it  saved  the  State,  it  has  also  polluted  the 
equity  of  our  laws,  turned  them  into  eriemies^of 
oppression  and  wrong,  corrupted  the  justice  of 
our  public  administration,  destroyed  the  fortunes 
of  thousands  who  had  most  confidence  in  it,  en- 
ervated the  trade,  husbandry,  and  manufactures 
of  our  country,  and  went  far  to  destroy  the 
morality  of  our  people."  t 


*  Phillips:  Colonial  and  Continental  Paper  Currency,  II.  175. 
f  Webster  /.  c.  1 75,  note. 


BANK  OF  NORTH  AMERICA. 

CALIF 


HISTORY  OF  AMERICAN  CURRENCY.      49 

It  ought  to  be  noticed  that  this  paper  was 
vaunted  as  "  the  safest  possible  currency,"  which 
11  nobody  could  take  away."  |       ^j  1  13  lv  A  11 

UNIVERSITY 

December  31,  1781,  the  Bank  o&N^rA  Amer- 
ica  was  chartered  with  a  capital  of  $400,000.  It 
took  its  origin  in  a  union  of  citizens  of  Philadel- 
phia, formed  in  the  preceding  year,  to  supply  the 
army  with  rations.  They  were  allowed  to  form 
a  bank,  and,  as  it  seems,  issue  notes  to  buy  the 
articles  required.  Congress  ordered  bills  drawn 
on  American  ministers  abroad  to  be  deposited  in 
the  bank  as  a  guarantee  of  payment.  $70,000 
in  specie  were  subscribed  in  1782  by  individ- 
uals, and  the  remainder  by  the  government  out 
of  the  proceeds  of  a  foreign  loan.  It  issued 
convertible  notes,  redeemable  in  Spanish  dollars ; 
but  the  people  were  slow  to  take  them.  Accord- 
ing to  the  story  given  by  Gouge,  the  Bank  was 
not  over  strong,  and  tried  to  keep  up  its  credit 
by  parading  and  handling  over  its  stock  of  silver. 
However,  it  made  large  dividends,  and  was  at- 
a  rival  which  it  was  obliged  to  absorb, 


r0      HISTORY  OF  AMERICAN  CURRENCY. 

and  secondly  by  an  effort  to  have  its  charter  re- 
pealed. The  latter  effort  was  successful  so  far 
as  the  state  charter  was  concerned.  It  went  on 
under  the  charter  of  the  Continental  Congress 
until  Vf&i,  when  it  was  re-chartered  by  Pennsyl- 
vania.    It  exists  yet. 

RENEWED   AGITATION  IN  FAVOR    OF  PAPER 
MONEY. 

In  1785  and  1786  an  insurrectionary  move- 
ment, known  as  Shay's  Rebellion,  broke  out  in 
New  England.  It  was  an  insurrection  of  debtors 
who  were  suffering-  from  the  collapse  of  the 
currency  and  return  to  specie  values.  They 
clamored  for  paper. 

"  No  desperately  indebted  people  can  long  en- 
dure a  regular,  sober  government."  This  insur- 
rection was  put  down  by  force,  but  Massachu- 
setts passed  a  law  delaying  the  collection  of 
debts. 

In  Rhode  Island  this  movement  was  not 
riotous,  but  took  the  form  of  a  political  move- 
ment. The  paper  money  party  carried  the  elec- 
tions  in    1786,  and  began   a  new  period   of  this 


HISTORY  OF  AMERICAN  CURRENCY.      5I 

mania  for  their  colony.  ,£100,000  were  issued 
by  a  vote  of  the  rural  districts  against  the  cities. 
The  bills  were  to  be  loaned  on  mortgage  of  land 
for  fourteen  years.  They  depreciated  at  once. 
Merchants  refused  to  deal,  and  closed  their 
shops.  The  farmers  retaliated  by  refusing  to 
bring  produce  to  the  cities,  and  thus  the  urban 
and  rural  populations  were  pitted  against  o£e 
another  in  a  ridiculous  warfare  which  brought 
business  to  a  stand-still.  In  Providence  it  was 
agreed  to  enter  into  intercourse  for  necessaries 
so  far  as  parties  could  agree,  and  to  borrow  $500 
to  send  abroad  for  grain.  The  farmers  met  and 
petitioned  the  Assembly  to  enforce  the  penal 
laws  in  favor  of  the  paper  money.  By  these 
laws  cases  involving  legal  tender  took  precedence 
of  all  others,  and  must  be  tried  within  three  days 
after  complaint  entered,  without  jury,  and  with 
three  judges  a  quorum.  The  decision  was  final. 
The  fine  for  the  first  offence  was  from  £6  to 
£30.  and  for  the  second  offence,  from  £10  to 
£50.  A  protest  by  the  representatives  of  the 
large  towns  against  this  law  was  not  allowed  to 
be  recorded. 


5 2      HISTORY  OF  AMERICAN  CURRENCY. 

John  Trevett,  of  Newport,  complained  of  John 
Weeden,  a  butcher,  for  refusing  bank  paper. 
The  five  judges  agreed  that  the  act  was  uncon- 

Jo  o 

stitutional.  A  special  session  of  the  Assembly 
was  convened,  before  which  the  judges  were  sum- 
moned to  "assign  the  reasons  and  grounds"  of 
the  late  decision.  Three  judges  came.  Two 
were  sick.  The  hearing  was  postponed.  A 
test  act  was  prepared  and  sent  to  the  towns  for 
approval,  but  it  went  too  far.  Only  five  towns 
approved.  It  proposed  to  disfranchise  any  one 
who  refused  the  bills  at  equality  with  metal. 
With  all  this,  money  was  so  scarce  that  land  • 
rents  were  paid  in  corn,  and  barter  became  com- 
mon. 

It  was  now  determined  to  pay  off  the  debt  of 
the  colony,  except  the  4  per  cents,  one  quarter  at 
a  time,  in  the  bills  received  for  taxes.  Any 
holder  of  colony  securities  who  did  not  come  up 
to  take  his  notes  within  a  set  time  forfeited  his 
securities.  The  whole  debt  was  paid  off  in  this 
way  within  two  years.  Three  months  after  it 
was  issued,  the  paper  stood  six  for  one  gold. 
The   question  of  ratifying   the  new  constitution 


HISTORY  OF  AMERICAN  CURRENCY.      53 

now  coming  up,  the  paper  money  party  was  for 
state  rights,  and  the  specie  party  for  the  federal 
constitution. 

In  the  spring  of  1787  there  were  twenty  bills 
in  equity  filed  in  court  for  the  redemption  of 
mortgaged  estates.  "The  suitors  came  prepared 
with  paper  money  in  handkerchiefs  and  pillow- 
cases to  redeem  their  lands."  It  was  moved  to 
have  the  bills  counted,  and  the  tender  recorded, 
but  the  court  held  that  it  had  nothing  to  do  with 
the  money  before  rendition  of  judgment,  nor  was 
it  for  them  to  be  instrumental  in  proving  a  ten- 
der. They  refused  to  entertain  any  motion  with 
the  latter  intention.  The  Assembly  next  removed  1 
four  of  the  judges  who  declared  the  legal-tender 
act  unconstitutional.  In  June,  1787,  the  paper 
was  at  eight  for  one.  In  1789  it  was  at  twelve 
for  one.  In  September  of  that  year  the  action  of 
the  legal-tender  act  was  suspended;  October  12 
the  depreciation  was  legally  fixed  at  eighteen  for 
one,  and  debtors  were  allowed  to  pay  in  produce. 

If  paper-money  issues,  tariff  laws,  and  bounties 
on  exports  can  make  a  nation  great  and  prosper- 
ous, Rhode  Island  ou2"ht  to  have  been  the  first 


54      HISTORY  OF  AMERICAN  CURRENCY. 

State  ia  the  union  in  point  of  wealth,  though  the 
last  to  enter  it. 

The  historian,  Arnold,  apologizes  for  her  dila- 
toriness  in  joining  the  union  by  the  extraordinary 
degree  of  liberty  her  citizens  had  enjoyed,  and 
their  jealousy  of  having  it  curtailed.  They  may 
have  had  la  Liber te  in  Rhode  Island  ;  they  did 
not  have  liberty. 

It  appears  that  all  the  provinces  were  strug- 
gling with  paper  issues  during  the  period  of  the 
old  confederation.  Specie  was  scarce  in  some, 
and  plentiful  in  others,  according  to  the  amount 
of  paper  outstanding.  The  Congress  of  the  con- 
federation had  not  the  power  to  tax,  and  its 
efforts  to  obtain  the  consent  of  the  States  to  its 
fiscal  legislation  failed.  Its  certificates  of  in- 
debtedness were  worth  only  twelve  or  fifteen 
cents  on  the  dollar.  A  coinage  law  was  passed 
in  1786,  but  no  coins  of  gold  or  silver  were 
struck.  Copper  coins  were  made,  but  they  were 
below  standard  and  depreciated. 


HISTORY  OF  AMERICAN  CURRENCY.      55 

ASSUMPTION  OF  THE  STATE  DEBTS. 

One  of  the  first  acts  of  the  Federal  Congress 
was  to  provide  for  the  settlement  of  the  out- 
standing accounts.  $21,500,000  were  appor- 
tioned to  the  States  to  assume  their  indebted- 
ness, subscriptions  being  received  in  their  paper 
at  a  discount,  but  as  the  federal  debt  at  once  rose 
in  value,  the  transaction  was  very  favorable  to 
the  holders  of  State  obligations.  The  amount 
actually  assumed  was  $18,271,814.  At  the 
same  time  the  States  were  credited  with  advances 
made  to  the  confederation,  and  charged  their 
quota  of  its  expenditure.  Thus  some  appeared 
as  creditors  and  others  as  debtors.  The  debtor 
States  never  settled  the  account.  The  creditor 
States  were  paid.  The  whole  transaction  was 
criticised  by  Mr.  Gallatin  *  as  unwise  and  waste- 
ful. It  met  with  much  opposition,  especially  from 
the  South,  and  there  were  always  rumors  of  bar- 
gain in  connection  with  this  act  and  the  removal 
of  the  capital  to  Washington. 

*  Sketch  of  the  finances  of  the  United  States.     1 796. 


56 


HISTORY  OF  AMERICAN  CURRENCY. 


BANKING  ON  CONVERTIBLE  CURRENCY. 


We  come  now  to  the  period  in  which  the  cur- 
rency  consisted  more  or  less  of  bank-notes,  nom- 
inally convertible,  issued  by  chartered  banks. 
The  system  to  which  it  has  most  analogy  is  that 
of  the  Scotch  banks,  although  of  these  latter 
only  three  are  chartered,  the  others  being  joint- 
stock  companies  and  partnerships.  We  shall 
have  abundant  proof  that  this  system  of  free 
banking  requires,  as  its  indispensable  conditions, 
moderation,  sagacity,  and  scientific  knowledge  on 
the  part  of  the  bankers.  Without  these  qualities 
in  the  managers,  it  is  as  wild  as  any  scheme  of 
paper  money.  Men  who  believe  that  "  bank- 
ing "  consists  in  making  paper  issues  and  loaning 
them,  making  them  as  large  as  possible  and  stim- 
ulating them  by  all  artificial  means,  and  discour- 
aging conversion  as  much  as  possible,  may,  as 
we  shall  see,  bring  down  more  ruin  on  the  com- 
munity by  this  engine  than  by  any  other. 

The  Bank  of  North  America  had  already  been 
founded.  Its  success  in  earning  dividends  led  to 
other  similar  enterprises.     Massachusetts  char- 


HISTORY  OF  AMERICAN  CURRENCY. 


57 


tered  the  Massachusetts  Bank  in  1784.  Soon 
after,  a  bank  was  chartered  in  New  York  and 
another  in  Maryland. 

PAPER  MONEY  AND  THE  FEDERAL  CONSTITU- 
TION. 

In  1787  the  Federal  constitution  was  framed. 
It  contains  a  clause  that  no  State  shall  "  coin 
money,  emit  bills  of  credit,  or  make  anything  but 
gold  or  silver  coin  a  tender  in  payment  of  debts." 
The  framers  of  the  document  thus  fixed  their  con- 
demation  of  the  old  paper  system,  and  the  people, 
smarting  under  recent  experiences,  acquiesced. 

It  was  proposed  in. the  constitutional  conven- 
tion to  give  to  Congress  the  right  to  emit  bills 
of  credit,  but  the  proposition  was  defeated  nine 
States  to  two.     (Madison  Papers,  III.  1,344.) 

Two  questions  have  been  raised  under  this 
clause:  1.  Can  a  State  authorize  banks'to  do  what 
it  cannot  do  itself?  As  the  confederation  had 
already  chartered  the  Bank  of  North  America,  it 
does  not  seem  that  the  "  bills  of  credit "  were  un- 
derstood to  cover  bank  notes.  The  courts  have 
held  that  a  State  may  authorize  bank  issues  when 


5 8       HISTORY  OF  AMERICAN  CURRENCY. 

itself  owns  all  the  stock,  the  legislature  appoints 
the  directors,  the  faith  of  the  State  is  pledged  for 
the  redemption  of  the  bills,  and  they  are  receiva- 
ble for  public  dues,  provided  the  capital  is  paid  in 
and  the  bank  may  be  sued.  (Story,  4th  ed.,  I. 
227,  note.) 

2.  Can  the  national  government  do  what  the 
States  cannot  do  under  this  clause?  The  legal- 
tender  cases  have  recently  decided  this  ques- 
tion in  .the  affirmative.  Mr.  Gallatin  said,  in 
1 83 1,  of  Congress  :  "  As  this  body  has  no  author- 
ity to  make  anything  whatever  a  tender  in  pay- 
ment of  private  debts,  it  necessarily  follows  that 
nothing  but  gold  and  silver  coin  can  be  made 
a  legal  tender  for  that  purpose,  and  that  Con- 
gress cannot  authorize  the  payment,  in  any 
species  of  paper  currency,  of  any  other  debts  but 
those  due  to  the  United  States."  This  is  only 
important  as  showing  the  belief  of  prominent  pub- 
lic men  on  this  point  in  earlier  times.  For  them 
it  was  a  simple  matter  of  course  that  Congress 
could  not  pass  a  legal-tender  act  of  any  kind, 
how  much  less  one  which  should  apply  to  exist- 
ing contracts.     The  legal-tender  decision  did  as 


HISTORY  OF  AMERICAN  CURRENCY.       eg 

great  a  wrong  as  the  Dred  Scott  decision,  and 
the  latter  instance  shows  us  that  it  is  not  useless 
to  discuss  a  constitutional  question,  even  after  the 
court  has  decided  it.  It  will  not  probably  take  a 
war  to  overthrow  the  principle  of  the  legal-tender 
act,  but  it  may  take  a  national  bankruptcy. 

THE  FIRST  BANK  OF  THE   UNITED  STATES. 

The  first  United  States  Bank  was  chartered  by 
Congress  in  1791.  Its  capital  was  $10,000,000, 
to  be  paid,  one-fourth  in  cash,  the  rest  in  bonds 
of  the  United  States.  The  charter  was  to  run 
for  twenty  years.     It  issued  no  bills  under  $10. 

Other  banks  were  now  formed  very  rapidly. 
The  following  list  is  given  by  Gouge,  though  he 
says  that  it  is  not  full : 

Banks  Banks  Banks 

chartered.  chartered.  chartered. 

1792 8  1799 3  1806 4 

1793 3  1800 2  1807 9 

1794 o  1801 3  1808 1 

1/95 5  t8°2 4  1809 3 

1796 1  1803 15  1810 8 

1797 o  1804 10  1811 n 

1798 o  1805 4  1812 19 


> 


60      HISTORY  OF  AMERICAN  CURRENCY. 

COINAGE. 

In  1794  the  first  silver  was  actually  coined, 
the  dollar  weighing  416  grs.,  1485  parts  pure  to 
179  parts  alloy.  Its  pure  contents  were,  there- 
fore, 371.25  grs.  Gold  was  first  coined  in  1795, 
the  eagle  weighing  270  grs.,  \^  fine,  so  that  one 
dollar  contained  24.75  Crs-  pure  gold.  It  will  be 
observed  that  where  two  metals  are  thus  made 
legal  tender,  and  there  is  both  a  silver  "  dollar  " 
and  a  gold  "  dollar,"  the  question  of  relative 
value  of  the  two  metals  is  involved.  It  was  as- 
sumed in  the  above  rating  that  silver  was  to  gold 
as  15  to  1.  We  have  had  one  instance  before  us 
already  when  Massachusetts,  in  1 761,  overrated 
gold  in  the  coinage  and  drove  out  silver.  If  the 
rating  should  be  correct  at  the  time  of  passing 
the  coinage  law,  yet  the  fluctuations  which  are 
continually  taking  place  in  the  relative  value  of 
the  two  metals  would  in  time  disturb  the  rela- 
tions, and  only  one  metal  would  circulate,  viz.,  the 
cheaper  one.  France  has  changed  to  a  silver 
currency  only,  and  then  to  a  gold  currency  only, 
by  these  fluctuations    since  her    mint   law  fixed 


HISTORY  OF  AMERICAN  CURRENCY.      6 1 

the  relation  in  the  coinage.  The  ratio  of  15  to  1 
was,  at  this  time,  unjust  to  gold.  The  actual 
market  value  being  15  J-  to  1.  We  shall  have  oc- 
casion to  notice  the  operation  in  this  case. 

BANK  ISSUES  IN  NEW  ENGLAND. 

The  development  of  banking  took  place  first 
in  New  England.  It  was  of  the  kind  later  known 
as  '•  wild-cat "  banking.  The  new  financial 
machine  seemed  so  powerful  and  beneficent  that 
all  that  was  necessary  was  to  work  it  to  the  ut- 
most. Notes  under  $5  were  not  allowed  in 
Massachusetts  until  1805,  but  after  that  smaller 
denominations .  were  allowed,  and  finally  notes 
were  issued  as  low  as  25  cents,  and,  by  the  law 
that  paper  drives  out  specie  to  the  lowest  denom  ■ 
ination  to  which  it  is  issued,  there  was  no  specie 
in  the  New  England  States.  The  stock  of  specie 
in  bank  was  insignificant,  and  was  moved  from 
bank  to  bank  to  meet  the  inspectors'  visits.  The 
downfall  came  in  1809.  One  bank  in  Massa- 
chussetts  had  $40  in  specie ;  another  nothing. 
The  system  of  subscribing  to  capital  by  notes 
was,    as    it    appears,    universal.      The    Farmers 


62       HISTORY  OF  AMERICAN  CURRENCY, 

Exchange  Bank  of  Gloucester,  R.  I.,  founded  in 
1804,  was  probably  the  worst  case.  Its  capital 
was  $1,000,000.  Only  $19,141.86  were  ever 
paid  in,  and  of  this  the  directors  withdrew  what 
they  paid  in,  leaving  $3,081.11.  One  Dexter 
bought  out  eleven  of  the  directors  for  $1,300 
each,  paid  out  of  the  bank's  funds.  He  borrowed 
of  the  bank  $760,265.  When  it  failed  it  had 
$86.46  in  specie  ;  bills  out  unknown  ;  the  com- 
mittee estimated  them  at  $580,000.  South  of 
New  England  banks  were  fewer,  and  there  was 
no  disturbance.  Silver  was  plentiful  in  the  West. 
The  exportation  from  Mexieo  was  through  the 
United  States. 

After  this  crash,  the  New  England  States  passed 
severe  banking  laws,  with  penalty  of  twelve  per 
cent,  interest  on  all  notes  not  redeemed  on  de- 
mand. In  18 13  the  New  England  Bank  was 
chartered  as  a  bank  of  redemption  at  Boston,  in 
order  to  keep  the  paper  of  banks  in  the  adjacent 
country  at  par.  It  accomplished  this  object,  but 
was  exceedingly  unpopular  with  its  country  cli- 
ents. This  was  the  origin  of  the  Suffolk  Bank 
system. 


HISTORY  OF  AMERICAN  CURRENCY.      63 


BANK  ISSUES  IN  THE  MIDDLE  STATES. 

The  banking  mania  now  broke  out  in  the 
Middle  States.  In  1810  Pensylvania  found  it 
necessary  to  forbid  the  issue  of  notes  by  incor- 
porated companies  —  bridge  companies,  etc. 
The  charter  of  the  Bank  of  the  United  States  ex- 
pired in  181 1,  and  its  renewal  met  with  such 
vigorous  opposition  that  it  was  defeated.  The 
constitutionality  of  the  charter  by  Congress  was 
doubted  from  the  outset.  This  bank,  so  far  as 
we  can  judge  from  the  information  we  have  in 
regard  to  it,  was  soberly  managed,  successful, 
and  beneficial  in  restraining  the  issues  of  the 
smaller  banks.  It  was  on  this  latter  account  es- 
pecially, and  also  because  others  desired  to  form 
small  banks,  that  a  strong  party  was  formed 
against  the  renewal  of  its  charter.  The  same  in- 
fluence defeated  its  efforts  to  get  a  charter  from 
the  State  of  Pennsylvania.  Great  fears  were  en- 
tertained that  a  severe  crisis  must  follow  the 
winding  up  of  the  United  States  Bank,  but  they 
were  not  realized. 


64       HISTORY  OF  AMERICAN  CURRENCY. 

The  note  circulation  of  the  banks  of  the  coun- 
try in  1811  is  estimated  by  Gallatin  at  46,000,000. 

The  field  being  thus  cleared,  twenty-five  char- 
ters were  passed  through  the  Pennsylvania  legis- 
lature in  181 2-13,  but  all  vetoed.  In  the  follow- 
ing session  forty-one  banks,  with  $17,000,000 
capital,  were  chartered  by  Pennsylvania  over  the 
veto.  In  a  report  to  the  Pennsylvania  Senate 
made  in  January,  1820,  by  a  committee  of  which 
Condy  Raguet  was  chairman,*  it  is  stated  that  at 
this  time  prices  were  low  in  New  England,  and 
specie  was  flowing  thither. 

The  country  being  now  at  war,  Mr.  Eppes,  of 
the  Ways  and  Means  Committee,  thus  explained 
the  financial  measures  by  which  it  was  proposed 
to  carry  on  war  (Winter  of  1813 — 1814). 

There  were  $75,000,000  bank  capital,  and 
$100,000,000  circulation  and  discounts  (depos- 
its). Deduct  forty-seven  millions  circulation  re- 
quired;  there  remain  fifty-three  millions,  "of 
which  we  propose  to  borrow  thirty  millions."  In 
18 1 2  the  government  borrowed  six  millions  from 


*  Abstracts  are  given  in  the  appendix  to  Raguet' s  Currency  and  Banking. 
Philadelphia,  1840. 


HISTORY  OF  AMERICAN  CURRENCY.       65 

banks,  and  four  millions  from  individuals  at  par. 
[n  18 13  it  borrowed  twenty  millions,  allowing 
3ne  hundred  and  thirteen  for  one  hundred  paid, 
[n  1 8 14  it  borrowed  fifteen  millions  ;  twelve  mil- 
ions  nett,  allowing  one  hundred  and  twenty-five 
ror  one  hundred  received.  No  more  was  to  be 
lad.  No  tax  was  laid  until  January  1,  18 14.  The 
oans  nearly  all  came  from  the  Middle  States,  the 
^ew  England  States  being  strongly  opposed  to 
he  war,  as  foolish,  unnecessary,  a  help  to  Napo- 
eon,  and  completing  the  ruin  begun  by  the  em- 
bargo. 

The  revenue  for  181 2,  '13,  and  '14  was  twelve 
nillions.  The  peace  expenditures  had  been 
tight  millions.  Treasury  notes  for  one  year  were 
ssued  in  181 2  to  the  amount  of  three  millions, 
nterest  at  five  and  two-fifths  per  cent.,  receivable 
n  taxes.  Six  millions  were  issued  in  18 13  ;  eight 
Trillions  in  18 14.  By  18 14  prices  were  rapidly 
idvancing,  business  was  brisk,  and  importations 
ivere  great.  Pennsylvania  notes  were  at  fourteen 
Der  cent,  discount.  It  was  complained  at  Phila- 
delphia that  silver  flowed  to  New  England  and 
was    there    exported.     The    importations    came 


66       HISTORY  OF  AMERICAN  CURRENCY. 

through  New  England.  There  was,  therefore, 
now  an  "  adverse  balance  of  trade,"  between  the 
Middle  and  New  England  States.  It  was  alsc 
claimed  that  the  New  Englanders  were  buying 
bills  drawn  for  the  supply  of  English  troops  in 
Canada  with  their  surplus  silver. 

The  New  England  Bank  having  collected  ovei] 
$100,000  worth  of  the  New  York  bills  which 
flooded  New  England,  sent  them  home  for  redemp- 
tion. The  silver  was  loaded  and  on  its  way  to  Bos- 
ton, when  the  Collector  of  New  York  stopped  it 
at  Chester,  and  ordered  it  to  the  Manhattan 
Bank,  of  which  he  was  a  director.  He  said  he 
suspected  that  it  was  to  be  sent  to  Canada.  The 
President  of  the  United  States  ordered  it  to  be 
given  up. 

On  the  30th  August,  18 13,  the  directors  of  the 
chartered  banks  of  Philadelphia  published  a  cir- 
cular, in  which  they  said  that,  on  account  of  the 
blockade,  exportation  of  produce  was  impossible. 
Hence  specie  had  been  exported,  and  "  as  the  im 
portation  of  foreign  goods  hr  the  Eastern  States 
has  been  very  large,  it  has  for  many  months  past 
occasioned   a   continual    drain   from   the   bank." 


HISTORY  OF  AMERICAN  CURRENCY.       6y 

hey  also  refer  to  the  English  bills  of  exchange, 
or  a  time  they  had  been  able  to  draw  from  the 
outhern  States  (the  New  Orleans  banks  sus- 
snded  because  "  a  contraband  trade  was  draw- 
g  off  the  specie  "),  but  this  was  no  longer  possi- 
e.  "  It  became  a  serious  consideration  whether 
Le  banks  should  continue  their  exertions  to  draw 
ithin  their  vaults  the  specie  capital  of  the  coun- 
y,  and  thus  facilitate  the  means  of  exporting  it 
om  the  United  States,  or  whether  they  should 
ispend  the  payment  of  specie  before  their  means 
ere  exhausted." 

This  plausible  explanation  appealed  to  the  pop- 
ar  prejudice  against  exporting  silver,  but  evi- 
tntly  concealed  the  true  relation  of  facts.  The 
Iver  went  to  New  England  unquestionably.  On 
ie  ist  June,  1811,  the  banks  of  Massachusetts 
ild  $  1 , 709*600  in  specie; 

frty..    ..//.^i.    ..    ...         $3,915,000. 

. . . . . .  A/^, .  .  A'-  \  ^6,171,000. 

i8i!L.r<l/./. . .  ^.Ijy      .     7,326,000. 


Oj(....  .0^915,000. 


I  J.  .     /A, 270,000. 
It  went  thither  because  there  was  a  sound  cur- 


68      HISTORY  OF  AMERICAN  CURRENCY. 

rency  and  low  prices  there,  and  went  away  from 
the  Middle  and  Southern  States  because  displaced 
by  redundant  paper  and  consequent  high  prices. 
It  was  because  the  Pennsylvania  banks  had  issued 
paper  until  it  was  at  a  discount,  that,  when  they 
got  the  silver  into  their  vaults,  they  could  not  keep 
it  there,  but  it  was  demanded  of  them  and  ex- 
ported. When  the  New  Englanders  took  it  they 
gave  something  for  it,  and  there  was  an  unusual 
importation  from  New  England.  They  also  used 
it.  Having  far  more  than  they  needed,  they  ex- 
ported it  either  directly  to  Europe  or  by  buying 
bills  payable  in  London,  and  increased  their  im- 
ports. I  know  of  no  more  complete  illustration 
of  the  true  doctrine,  and  of  the  error  by  which  it 
is  beclouded 

There  was  at  the  same  time  a  movement  of 
specie  to  Ohio,  Kentucky,  and  Tennessee,  where 
there  were  no  banks. 

SUSPENSION  OF  1814. 

In  1814  all  the  banks,  save  the  New  England 
banks,  suspended.  In  the  year  181 5  the  Penn- 
sylvania banks  increased  their  loans  $10,000,000. 


HISTORY  OF  AMERICAN  CURRENCY.       69 

Business  was  active  and  prices  high.  The  mer- 
chants agreed  to  the  suspension  if  specie  pay- 
ments should  be  resumed  after  the  war.  Small 
coin  disappeared  and  tickets  were  used.  Notes 
were  depreciated  from  twenty  to  fifty  per  cent. 
Importations,  especially  of  articles  of  luxury,  in- 
creased. Credit  was  great  and  expanding,  prices 
continually  rising. 

The  Secretary  of  the  Treasury  now  began  to 
be  engaged  in  the  money-market.  He  tried  to 
get  the  banks  to  come  to  some  agreement 
which  should  bring  about  a  uniform  currency, 
but  he  failed.  He  then  ordered  that  taxes 
should  be  received  only  in  specie,  Treasury 
notes,  or  notes  of  banks  which  received  Treas- 
ury notes  at  par.  The  banks  received  them 
at  par  when  they  were  at  or  above  par  in  the 
market,  but  not  otherwise.  The  banks  which 
took  Treasury  notes  issued  bills  for  them,  so 
that  the  issues  of  the  Treasury  stimulated  those 
of  the  banks.  The  notes  of  the  latter  when 
issued  accumulated  in  the  banks  which  did  not 
take  Treasury  notes,  so  that  the  Treasury 
received    the  notes    of    debtor    banks    when    it 


7o 


HISTORY  OF  AMERICAN  CURRENCY. 


would  not  receive  those  of  creditor  banks. 
At  the  same  time,  while  loans  increased  three 
per  cent,  on  capital,  there  was  $3,000,000  less 
mercantile  discount,  the  rest  being  on  govern- 
ments, and  the  government  Treasury  held  bank 
notes  instead  of  Treasury  notes.  These  bank 
notes  would  not  pass  thirty  miles  from  the  place 
at  which  they  were  issued.  The  paper  prosper- 
ity was  now  in  full  tide  (181 5).  Gouge  quotes  a 
pamphlet  of  Mr.  Matthew  Carey,  in  which  he 
called  this  the  "  golden  age  "  of  Philadelphia. 

The  ideas  about  money  and  currency  which 
had  prevailed  in  England  in  18 10  and  181 1  now 
appeared  here,  as  they  always  appear  where  paper 
money  is  in  use.  It  was  said  that  silver  had 
risen  (though  the  Pennsylvania  Senate  Committee 
say  this  notion  was  abandoned  by  the  end  of 
181 5),  and  that  a  dollar  was  an  ideal  unit.  Dr. 
Bollman  proposed  a  scheme  for  a  National  Bank 
to  issue  notes  redeemable  in  six  per  cent,  gov- 
ernment stock,  which  would  keep  them  from  de- 
preciation and  tie  them  to  a  fixed  value.  State 
banks  were   to  issue   notes  and  redeem  them  in 


HISTORY  .OF  AMERICAN  CURRENCY. 


71 


this  paper.  Carey  said  it  was  a  "  magnificent  " 
plan. 

Madison  recommended  another  national  bank, 
but  vetoed  the  first  bill  because  it  allowed  the 
bank  to  begin  under  a  suspension.  Peace  was 
ratified  in  February,  181 5,  and  the  Conservatives 
now  held  that  a  national  bank  was  necessary 
to  hold  the  State  banks  in  check.  They  did 
not  want  it  to  begin  under  a  suspension.  A 
second  charter  was  passed.  The  capital  was  to 
be  $35,000,000. 

There  were  immense  importations  in  this 
year.  The  English  merchants  exported  enor- 
mously* after  peace  was  declared,  anticipating 
demand.  These  goods  were  forced  to  sale  here 
as  well  as  elsewhere.  The  prices  proved  un- 
remunerative  to  the  foreign  owners,  and  also  ruin- 
ous to  the  injudicious  enterprises  which,  having 
been  undertaken  here  .under  the  protection  of 
war,  had  taken  permanent  form.  These  were 
by  no  means  so  numerous  or  extensive  as  is 
sometimes  asserted  and  generally  believed,  but 
there   were    such.      This   brought   us    the    boon 

*  See  Chapter  II.  p.  283. 


j 2       HISTORY  OF  AMERICAN  CURRENCY. 

of  our  first  strong  protective  tariff,  though  the 
average  duties  were  only  about  thirty  per  cent,  on 
dutiable.  The  principle  of  protection  had  been 
adopted  in  1789,  and  the  rates  of  duty,  very  low 
at  first,  had  been  steadily  increased  by  biccessive 
enactments.  The  tariff  of  18 16  was  avowedly 
carried  as  a  realization  of  the  "  American  sys- 
tem," but  afterwards  it  came  to  be  referred  to,  in 
the  retrospect,  as  a  British  free-trade  tariff. 

The  great  importations  gave  the  government 
a  large  surplus  revenue.  It  had  $22,000,000 
nominal  balance  in  the  Treasury,  but  it  consisted 
of  bank-notes  which  could  only  circulate  in  a 
small  district  around  their  place  of  issue,  and  the 
places  where  the  government  was  creditor  and 
held  the  notes  were  not  the  places  where  it  want- 
ed to  pay  its  floating  debt.  New  seven  per  cent, 
notes  were  issued  to  pay  the  quarterly  interest, 
and,  to  pay  the  interest  at  Boston,  January  1, 
181 7,  the  government  was  obliged  to  borrow 
$50:, 000  of  the  United  States  Bank  before  it 
opened.  Banks  which  were  government  depos- 
itories refused  to  pay  government  drafts,  save  for 
current    expenses,    and    they    controlled    other 


HISTORY  OF  AMERICAN  CURRENCY.       73 

banks  because  they   held    government    deposits 
in   the  bills  of  the  latter. 

SECOND  UNITED  STATES  BANK.  _  //  , 

73      f(o\ 

On  January  1st,  18 17,  the  Second  United 
States  Bank  opened.  By  the  charter  its  capital 
was  to  consist  of  $7,000,000  government  subscrip- 
tion,^ 7,000,000  specie,  and  $21,000,000  gov- 
ernment stock  or  specie.  It  began  business 
with  $1,400,000  in  specie,  $14,000,000  in  stocks, 
and  the  rest  in  stock  notes.  $2,800,000 
were  soon  due  on  the  second  instalment,  but 
this  would  come  for  the  most  part  from  notes  or 
discounts  of  the  bank  itself.  Only  $32,400  of  it 
were  paid  in  specie.  The  third  instalment  was 
still  worse.  The  bank  discounted  its  own  stock 
at    par    to    enable   the    instalment   to   be    paid. 

I  "The  discounts,  the  payment  of  the  second  in- 
stalment,   the   payment  of   price    to   the   owner, 

<  the  transfer,  and  the  pledge  of  the  stock  were, 
as  it  was  termed,  simultaneous  operations."  In 
August,  181 7,  the  bank  discounted  its  own 
stock  at  125.  The  facilities  for  stock-jobbing 
were  excellent,  and  they  were  used. 


74      HISTORY  OF  AMERICAN  CURRENCY. 

RESUMPTION 

Congress  resolved  that  after  February  20th, 
1817,  only  specie,  Treasury  notes,  and  notes  of 
specie-paying  banks  ought  to  be  taken  by  the 
national  Treasury.  The  banks  refused  to  resume 
before  July,  181 7.  New  York  passed  a  law  im- 
posing twelve  per  cent,  interest  on  notes  not  re- 
deemed, and  the  banks  finally  agreed  to  resume  on 
February  20th,  if  the  United  States  Bank  would 
extend  its  discounts  as  they  contracted.  This  was 
agreed  to.  The  bank  allowed  $30,000,000  dis- 
counts the  first  year,  and  the  Committee  of  the 
Pennsylvania  Senate  say  that  it  more  than  made 
up  for  the  contraction  of  the  State  banks,  and 
that  the  resumption  was  only  nominal. 

The  Western  banks  were  still  comparatively 
sound,  silver  being  at  six  per  cent,  premium  there, 
and  fourteen  per  cent,  in  Philadelphia.  The 
Southern  banks  had  joined  the  inflation.  There 
were  fourteen  banks  in  Virginia,  North  and  South 
Carolina,  and  Georgia,  in-1814,  and  twenty -three 
in  1815. 

In  181 7  a  case  at  Richmond,  after  specie  pay- 


HISTORY  OF  AMERICAN  CURRENCY.       75 

ments  were  resumed,  gives  an  insight  into  the 
state  of  things.  A  man  having  presented  ten 
one-hundred-dollar  notes  for  redemption  was 
refused.  He  could  not  get  a  lawyer  to  take 
a  case  against  the  bank  for  a  long-  time.  Fi- 
nally,  having  obtained  judgment,  the  sheriff  was 
sent  to  collect.  The  president  of  the  bank  was 
taken  before  the  court,  but  refused  to  pay.  The 
bank  was  closed  by  the  sheriff,  but  soon  after 
opened  and  went  on. 

The  inflation  during  this  year  was  increased 
by  the  government  paying  off  eleven  millions  of 
the  public  securities  held  by  the  bank.  The 
note  circulation  at  this  time  is  estimated  at  one 
hundred  millions.  It  is  to  be  noticed  that  the 
banks  were  as  recalcitrant  about  giving  statistics, 
either  to  the  Secretary  of  the  Treasury  or  private 
investigators,  as  about  any  of  their  other  duties, 
so  that  wre  have  no  trustworthy  statistics. 

CONDITION  OF  THE  UNITED  STATES  BANK. 

In  March,  1818,  the  discounts  of  the  United 
States  Bank  were  forty-three  millions,  eleven 
millions  on  stock.     The  notes  could  not  be  signed 


;6      HISTORY  OF  AMERICAN  CURRENCY. 

fast  enough.  It  had  two  millions  in  specie.  Our 
knowledge  of  its  affairs  at  this  time  is  derived 
from  the  report  of  Mr.  Cheeves,  who  became  its 
president  during  this  year,  and  three  years  after- 
wards delivered  a  report  stating  how  he  found 
the  bank,  and  what  he  did  to  save  it.  It  now 
had  eighteen  branches,  but  never  over  $3,000,000 
specie  in  them  all.  Its  operations  in  the  West 
drew  that  region  into  the  prevailing  mania. 
Its  branches  paid  out  their  own  notes  and  held 
those  of  the  State  banks  as  far  as  possible.  They 
redeemed  their  own  notes  by  drafts  on  the  East. 
They  thus  obtained  the  specie  of  those  States, 
and  the  States  had  credits  at  New  York  for  the 
value  of  the  same,  which  they  used  for  enlarged 
purchases.  The  West  therefore  now  entered 
on  the  "  golden  age."  There  were  forty-three 
banks  in  Kentucky,  ten  in  Tennessee,  and  eight  in 
Ohio  in  18 18. 

The  bank  now  bought  seven  millions  bullion 
in  the  West  Indies  at  a  cost  of  $800,000  ex- 
penses. It  was  exported  as  fast  as  it  was  im- 
ported. In  April,  18 18,  fifteen  months  after 
the  bank  started,  it  was  doubtful  whether  it  was 


HISTORY  OF  AMERICAN  CURRENCY.       77 

solvent.  Energetic  measures  of  contraction  were 
adopted.  It  was  ordered  that  discounts  be 
reduced  by  November  1st,  $2,000,000  at  Bal- 
timore, $2,000,000  at  Philadelphia,  $700,000 
at  Richmond,  $500,000  at  Norfolk.  $4,500,000 
contraction  was  accomplished,  but  more  was 
urged,  as  silver  was  yet  at  ten  per  cent,  premium. 

The  parent  bank  refused  the  notes  of  its 
branches,  and  they  of  each  other,  and  called  on 
the  State  banks  to  pay  balances  in  specie.  It 
was  proposed  that  the  government  should  issue 
Treasury  notes,  and  a  meeting  was  held  at  Phila- 
delphia, Mr.  Carey  in  the  chair,  which  appointed 
a  committee  to  petition  Congress  to  pass  a  law 
forbidding  the  exportation  of  specie.  The  com- 
mittee refused  to  serve. 

In  November,  Congress  appointed  a  committee 
of  investigation,  which  reported  a  resolution  that 
a  scire  facias  should  issue  for  the  forfeiture  of 
the  charter  of  the  United  States  Bank.  This 
was  lost,  forty  members  of  Congress  being  stock- 
holders. John  Randolph  said  a  man  might  as 
well  go  to  Constantinople  and  preach  Christianity, 
as  to  go  to  Congress  and  preach  against  banks. 


7  8       HISTORY  OF  AMERICAN  CURRENCY. 

Mr.  Cheeves  now  became  President,  vice 
Mr.  Wm.  Jones.  The  total  contraction  this  year 
was  six  millions,  all  in  the  North  and  East. 
The  issues  in  the  South  and  West  were  increas- 
ing. 

On  April  i,  1819,  the  state  of  the  bank  was: 
specie,  $126,745.28;  notes,  $6,000,000;  due 
other  banks,  $79,125.99  ;  due  government,  $500,- 
000 ;  due  Barings,  $900,000.  There  were 
$267,978.09,  in  the  mint,  and  $250,000  specie 
on  the  way  from  the  West.  The  New  York  and 
Boston  branches  were  in  worse  condition.  The 
Baltimore  branch  had  given  $3,000,000  discounts, 
of  which  the  parent  bank  had  no  knowledge, 
apparently  from  corrupt  motives.  $1,671,221, 
were  lost  there.  The  total  losses  to  date  were 
$3,500,000.  Dividends  for  $4,410,000  had  been 
paid,  of  which  $1,348,553  had  been  gained  by  in- 
terest on  public  securities.  Net  loss  over  $500,- 
000.  The  bank  now  took  the  most  energetic 
measures  to  save  itself,  and  in  seventy  days  was 
once  more  solvent,  but  it  had  ruined  the  com- 
munity.    The  "golden  age"  was  now  far  in  the 


HISTORY    OF  AMERICAN  CURRENCY. 


past,  and  was  se 


79 


p  to  be  only  a  gilt-paper  age  after 


all.       The  ruin  was  almost  universal. 

CRISIS  OF  1819. 

In  August,  18 19,  20,000  persons  were  seeking 
employment  in  Philadelphia,  and  there  was  a 
similar  state  of  things  in  New  York  and  Bal- 
timore. Thirty  trades  which  employed  9,672 
persons  in  181 6,  at  Philadelphia,  employed  only 
2,137  in  1 8 19.  Trades  which  employed  1,960 
persons,  at  Pittsburg,  in  18 15,  employed  only 
672  in  1 8 19.  The  papers  were  filled  with  adver- 
tisements of  sheriff's  sales. 

All  this  was  used  as  an  argument  then,  and 
has  been  so  used  since,  to  prove  that  we  needed 
"protection  to  American  industry." 

The  committee  of  the  Senate  of  Pennsylvania, 
already  referred  to,  ascribed  the  distress  to 
abuses  of  banking,  and  a  similar  committee  of 
the  House  traced  it  back  to  the  expansion  of 
banking  in  18 14.  "  In  consequence  of  this  most 
destructive  measure,  the  inclination  of  a  large  part 
o^  the  people,  created  by  past  prosperity,  to  live 
by  speculation  and  not  \  by  labor,  was  greatly  in- 


So      HISTORY  OF  AMERICAN  CURRENCY. 

creased.  A  spirit  in  all  respects  akin  to  gambling 
prevailed.  A  fictitious  value  was  given  to  all 
kinds  of  property.  Specie  was  driven  from  cir- 
culation as  if  by  common  consent,  and  all  efforts 
to  restore  society  to  its  natural  condition  were 
treated  with  undisguised  contempt." 

Niles'  Register,  quoted  by  Gouge,  says  of 
the  prevailing  extravagance  :  "  The  prodigality 
and  waste  of  some  of  these  [speculators]  were 
almost  beyond  belief.  We  have  heard  that  the 
furniture  of  a  sing1e  parlor  possessed  (we  can- 
not say  owned)  by  one  of  these  cost  $40,000. 
So  it  was  in  all  the  great  cities — dash — dash — 
dash — vendors  of  tape  and  bobbins  transformed 
into  persons  of  high  blood,  and  the  sons  of  re- 
spectable citizens  converted  into  knaves  of  rank — 
through  speculation  and  the  facilities  of  the  abomi- 
nable paper-money  system." 

Land  in  Pennsylvania  was  worth  on  the  aver- 
age, in  1809,  $38  per  acre;  in  181 5,  $150;  in 
1 8 19,  $35.  The  note  circulation  of  the  country 
in  1812  was  about  45,000,000;  in  1817,  100,000,- 
000;  in  1 8 19,  45,000,000. 

The  newspapers  of  18 19  contain  numerous  ac- 


HISTORY  OF  AMERICAN  CURRENCY.      g T 

counts  of  riots,  incendiary  fires,  frauds,  and  rob- 
beries. The  House  committee  spoke  of  the 
"  change  of  the  moral  character  of  many  of  our 
citizens  by  the  presence  of  distress."  The  dis- 
tress extended  to  New  England,  but  was  less 
severe  there  than  elsewhere.  In  the  West  it 
was  intense.  In  Kentucky  stay  laws  were 
passed  which  were  distinctly  unconstitutional, 
but,  the  court  having  so  decided  them,  a  new  court 
was  appointed  which  reversed  the  decision.  Old 
Court  and  New  Court  became  political  issues. 
The  New  Court  party  carried  the  State  until  1826, 
when  the  disorganization  and  misery  occasioned 
by  the  laws  led  to  a  revulsion,  and  the  laws  were 
set  aside.  Similar  laws  were  passed  in  Tennes- 
see, Gen.  Jackson  vigorously  opposing.  The 
banks  of  the  South  pretended  to  pay  specie,  but 
Gouge  quotes  an  eye-witness  in  regard  to  the 
proceedings  of  the  Darien  Bank,  Georgia. 
One  who  presented  a  bill  must  make  oath  in  the 
bank  before  a  justice  of  the  peace  that  the  bill 
was  his  own,  and  that  he  was  not  an  agent  for 
any  one.  He  must  also  make  this  oath  before 
the    cashier   and    five    directors,    and    must   pay 


82       HISTORY  OF  AMERICAN  CURRENCY. 

$1,371  on  each  bill.  The  United  States  Bank 
protested  $500  of  the  bills  of  the  Bank  of 
Georgia,  and  sold  them  at  auction.  When 
specie  was  demanded,  cents  were  counted  out  at 
the  rate  of  $60.00  per  day. 

Stagnation  and  distress  lasted  throughout 
1820.  Prices  were  at  the  lowest  ebb  and  liquida- 
tion went  slowly  on.  Wheat  was  at  20  cts.  per 
bushel  in  Kentucky.  A  man  in  Western  Virginia 
stopped  Niles'  Register  because  one  barrel  of 
flour  used  to  pay  a  year's  subscription  ;  now 
three  barrels  would  not.  At  Pittsburg  flour  was 
$1  per  barrel,  boards  20  cts.  per  hundred,  sheep 
$1.  Imported  goods  were  at  old  prices.  The 
banks  settled  down  to  quiet  regularity.  Notes 
were  for  the  most  part  brokers'  merchandise,  but 
others  circulated  at  a  discount  only  equal  to  the 
cost  of  transporting  specie  from  the  place  of  issue 
to  the  place  of  circulation.  Money  was  plentiful 
in  the  hands  of  those  who  had  no  debts  to  pay, 
where  of  course  it  must  settle  whenever  the 
social  machinery  comes  to  a  stand-still.  They 
would  not  lend  or  invest,  though  the  papers  were 
filled   with  advertisements.       Rent   of    a    <nven 


HISTORY  OF  AMERICAN  CURRENCY.       %x 

house  in  Philadelphia  fell  from  $1200  to  $450, 
fuel  from  $12  to  $5.50,  flour  from  $10.00  to 
$4.50,  beef  from  25  cents  to  8  cents  per  lb. 
Printing  was  little  done.  School-books  were  a 
drug.  Niles  says  that  five  years  before,  stores 
on  Market  Street  were  cut  in  two  and  then  not 
enough.  Dwelling-houses  were  in  great  demand. 
The  stores  were  now  reunited,  and  houses  more 
than  enough.  The  population  of  Philadelphia 
decreased  10,000  between  181 5  and  1820.  Rents 
on  Market  Street  were  $250,000  less  in  1820  than 
in  18 1 5.     Wages  were  low  on  half  time. 

In  1820  Virginia  forbade  notes  under  $5. 

During  1821  the  general  stagnation  continued. 
Liquidation  went  on  slowly.  Investments  were 
only  gradually  taken  up  as  confidence  revived. 
In  April  of  that  year  Kentucky  notes  exchanged 
for  silver  210  for  100.  Tennessee  notes  were  at 
10  per  cent,  discount  until  1830.  Comptroller's 
warrants  were  issued  in  Alabama,  which,  in  order 
to  make  them  more  attractive,  were  printed  on 
silk  paper.  The  tariff  on  iron  was  raised.  In 
June  an  expansion  began,  and  by  October  there 
was  a  well-marked  upward  movement,  but  in  the 


84      HISTORY  OF  AMERICAN  CURRENCY. 

fall  of  1822  there  was  a  reaction,  woollen  and  cot- 
ton goods  falling  50  per  cent,  in  a  few  weeks  in 
December.  In  1823  the  circulation  of  the  United 
States  Bank  was  very  low — $4,081,842,  but  there 
was  a  great  creation  of  banks,  and  insurance  and 
other  companies  at  New  York.  Later  in  the 
year  the  United  States  Bank  received  the  notes 
of  all  its  branches,  and  began  to  expand. 

CRISIS  OF   1825. 

In  1824  all  the  banks  expanded.     Pennsylva- 
nia re-chartered  the  banks  of  18 14,     A  new  tariff 
was  obtained  raising  duties  to  35  per  cent.,  and  a 
grand  era  of  prosperity  was   expected.     In  the 
spring  of  1825  fifty-two  charters  were  petitioned 
for  in  New  York  for  banks  and  insurance  com- 
panies.    When  charters  could  not  be  obtained  of 
New  York,  they  were  obtained  in  New  Jersey, 
and  the  banks  were  established  on  the  west  bank 
T  of  the  Hudson.     In  Kentucky  there  was  anarchy. 
Alabama  and  Tennessee  notes  were  at  a  discount. 
Indiana,  Illinois,  and  Missouri  were  still  suffering 
from  the  "  relief '  system  (stay  laws  against  the. 
collection  of  debts,  etc.).     The   New  York  and 


HISTORY  OF  AMERICAN  CURRENCY.       85 

Boston  city  banks  were  fighting  the  country  issues, 
which,  being  current  and  depreciated,  drove  out 
the  better  notes  of  the  city  banks.  The  Bank 
of  the  United  States  increased  its  issues  over 
3,000,000. 

In  the  meantime  business  was  reviving  in 
England,  manufactures  especially  being  very 
prosperous,  and  creating  a  great  demand  for  raw 
materials.*  Heavy  orders  for  cotton  ran  its 
price  up  here  to  27  cents.  Corn  was  pulled  up 
to  plant  cotton,  and  an  active  speculation  in  it 
began.  The  excess  of  exports  over  imports  of 
specie  in  1825  were  $2,646,290.  The  excess  of 
exports  over  imports  of  merchandise  were  $549,- 
023.  In  July  the  fall  in  prices  in  England 
brought  a  fall  here.  Fifty  failures  took  place  in 
New  York  before  December.  Banks  failed  in 
large  numbers.  The  United  States  Bank  was  in 
trouble.  The  government  wanted  to  pay  off 
seven  millions  through  the  bank,  but  delayed 
this  operation  at  the  request  of  the  latter, 
giving  occasion  to  one  of  Jackson's  subsequent 
charges  against  it.     When  it  was  done  the  bank 

*  See  Chapter  II.  p.  302. 


86      HISTORY  OF  AMERICAN  CURRENCY. 

became  debtor  to  the  State  banks  and  could  not 
redeem  its  notes,  explaining  that  bills  drawn  to 
pay  English  troops  in  Canada  and  for  the  forma- 
tion of  a  bank  in  New  Orleans  had  shortened 
specie  supplies.  It  will  be  observed  that  the 
outflow  of  specie  must  always  take  place  in  that 
for77i  which  at  the  moment  gives  greatest  profit, 
though  the  cause  is  always  the  same,  and  the 
usage  is  to  explain  the  cause  by  the  form  of  the 
export.  The  causes  mentioned  could  have  had 
no  effect  whatever  unless  there  had  been  over- 
issues. 

In  1826  there  was  dulness  and  reaction 
throughout  the  year.  The  cotton  crop  was  poor. 
There  were  applications  for  charters  for  123 
banks  and  insurance  companies  in  New  York, 
which  were  refused.  In  April,  1826,  ten  or  twelve 
failed  and  a  run  followed  ;  but  the  banks  held  out. 
In  this  year  the  importations  of  merchandise 
exceeded  the  exportations  by  $5,202,722 ;  the 
importations  of  specie  exceeded  the  exportations 
by  $2, 1  j6,^o-  The  method  of  importation  was  to 
buy  bills,  get  long  credit  for  duties,  and  send  the 
cargos,  as  soon  as  received,  to  auction.    The  aucr 


.  HISTORY  OF  AMERICAN  CURRENCY.      gj 

tioncer's  notes  were  discounted,  new  bills  bought, 
and  the  transaction  repeated  as  long  as  rising 
prices  and  easy  credit  made  it  possible. 

The  crisis  of  1825  was  by  no  means  so  great 
in  this  country  as  in  England.  The  country  was 
not  yet  recovered  from  the  convulsion  of  18 19. 
The  Western  States  especially  had,  as  yet,  not 
escaped  from  the  effects  of  that  crisis.  The 
speculation  here  was  led  off  by  the  excitement  in 
England,  especially  in  cotton.  The  joint-stock- 
company  mania  seems  also  to  have  broken  out 
here  by  contagion  or  sympathy.  The  banks, 
instead  of  applying  any  check  to  the  unhealthy 
movement,  or  using  any  conservative  measures, 
joined  freely  in  the  excitement.  The  crisis  was 
not  a  bank  crisis.  Suspensions  were  not  in 
fashion,  and  the  few  banks  which  did  suspend 
failed.  The  prudent  refusal  of  the  New  York 
legislature  to  grant  the  charters  asked  for  during 
the  last  two  years  was  amply  justified. 

In   1827  money  was  plentiful.     In   1828  it  was 

plentiful    until     May,    when     there    was    great 

scarcity,  renewed  in  September.     In  May,  1828, 

the   highest   protective    tariff    before    1864   was 

I 


88      HISTORY  OF  AMERICAN  CURRENCY. 

passed.  The  percentage  of  duties  on  total  im- 
ports in  1830  was  30.93,  and  on  dutiable,  47.46. 
In  1829  money  was  scarce  until  July,  when  it  be- 
came plentiful.  President  Jackson  opened  the 
attack  on  the  United  States  Bank  in  his  first 
message  in  December  of  that  year.  In  1830 
money  was  plentiful.  An  English  writer  of  the 
period  speaks  of  specie  as  flowing  to  America 
from  all  parts  of  the  world,  and  Niles'  Register 
quotes  a  contemporary  as  complaining  of  the 
over-abundance  of  silver,  and  wishing  some  gulf 
might  open  to  swallow  it.  The  Bank  of  the 
United  States  increased  its  loans.  During  1831 
it  continued  this  movement,  increasing  its  loans 
from  forty  to  sixty  millions,  as  President  Jackson 
charged,  in  order  to  manufacture  popularity.  In 
October,  183 1,  the  money-market  became  strin- 
gent. In  1832  the  United  States  Bank  still 
further  extended  its  discounts  to  seventy  mil- 
lions. 

INVESTMENTS  OF  FOREIGN  CAPITAL. 

About  the  year   1830  American  securities  be- 
gan to  attract  English  investments.     Some  stock 


HISTORY  OF  AMERICAN  CURRENCY.      89 

of  the  United  States  Bank  had  been  held  by 
foreigners  from  still  earlier  date,  but  large  trans- 
fers of  it  occurred  late  in  the  twenties.  State  and 
canal  stocks  were  also  sold  abroad  in  1828-183 2. 
The  opportunities  for  remunerative  investment  of 
capital  in  this  country  waited  only  for  improved 
transportation  to  present  themselves.  Canals 
were  the  first  movement  in  this  direction,  and 
steamboats  the  next ;  but,  in  the  decade  from 
1830  to  1840,  railroads  being  introduced,  the 
industrial  development  of  the  country  went  on 
with  gigantic  strides.  At  the  same  time  the  old 
restrictive  system  was  partially  broken  down, 
first  by  the/lreeing  of  some  raw  materials  in 
England:  under  Mr.  Huskisson's  administration,  2 
then  by  the  modification  of  the  Navigation  Acts,  9- . 
extorted  from  England  by  Prussia  in  1825,  by 
which  the  trade  with  the  British  West  Indies 
was  opened — an  advantage  which  did  not  accrue 
to  the  United  States,  on  account  of  diplomatic 
mistakes  (this  country  claiming  as  a  right  what 
was  offered  as  a  privilege)  until  1830,  and  thirdly 
by  our  lame  compromise  tariff. 

The  interesting  period  whose  history  we  have 


90      HISTORY  OF  AMERICAN  CURRENCY. 

next  to  pursue,  cannot  be  understood  if  ob- 
served from  a  narrow  standpoint,  and  inter- 
preted by  subordinate  incidents.  The  intro- 
duction of  the  new  means  of  intercourse 
produced  a  development  of  industry  so  great  as 
to  amount  to  a  revolution,  so  sudden  as  to 
create  a  convulsion.  It  required  for  its  guid- 
ance, above  all,  financial  skill  ;  for  it  caused  a 
strain  upon  the  existing  capital  of  society  be- 
yond what  it  was  able  to  bear.  This  led  to  the 
usual  resort  to  credit,  and  to  credit  in  its  most 
explosive  forms,  bank  discounts  and  paper  cur- 
rency. The  downfall  at  the  end  of  the  decade 
was  the  result  of  too  headlong  a  career  of  pros- 
perity, or  of  the  intoxication  which  comes  to  men 
when  they  find  themselves  in  control  of  uri- 
dreamed-of  powers  of  production.  The  two 
greatest  commercial  nations,  England  and  the 
United  States,  were  naturally  the  first  to  ava'l 
themselves  of  the  new  inventions,  and  they  felt 
the  crisis  the  most  severely.  They  were  tied 
together  by  the  capital  loaned  by  the  elder  to 
the  younger  nation.  Some  asserted  at  the  time 
that    specie   currency   would   hold   the   two  to- 


HISTORY  OF  AMERICAN  CURRENCY.      g>i 

gether,  and  render  every  circumstance  of  the  one 
important  to  the  other ;  others  affirmed  the 
same  of  paper  currency.  Neither  party  was  on 
the  right  track.  Evidently  the  bond  which 
bound  them  was  the  credit  extended  to  America 
by  England,  and  the  crisis  in  either  country  can- 
not be  understood  without  reference  to  the 
events  and  movements  in  the  other. 

CURRENCY  AND  TARIFF  AS  POLITICAL  ISSUES. 

Unfortunately  during  this  period — the  period  in 
which  financial  and  fiscal  questions  were  studied 
and  understood  by  the  American  people  better 
than  at  any  other  time  in  our  history — those 
questions  were  made  issues  in  party  politics.  I 
see  no  reason  why  they  should  not  be  political 
issues.  Indeed,  I  am  convinced  that  such  ques- 
tions never  will  be  settled  until  they  become 
political  issues.  But  the  reason  why  the  strug- 
gles of  the  thirties  proved  so  fruitless  in  the  end 
was  that  parties  did  not  divide  according  to  in- 
telligent conviction  in  regard  to  tariff  and  hard- 
money,  but  parties  already  formed  took  sides  on 
these  questions.      President  Jackson,  elected  as 


92      HISTORY  OF  AMERICAN  CURRENCY. 

much  for  military  prestige  as  anything,  had  im- 
bibed from  what  he  had  seen  of  paper  money  in 
Tennessee  and  ^ntucky  a  fierce,  but  not  too  in- 
telligent, detestation  of  it.  He  committed  his 
friends  and  the  democratic  party  to  hard  money. 
Thus  thousands  of  men  who  were  democrats  on 
previous  issues  became  hard-money  men  with- 
out knowing  why.  Mr.  Clay  committed  himself 
to  protection  without  any  thorough  knowledge 
or  true  conviction  of  the  principles  involved. 
He  carried  the  Whig  party  (proper  exceptions 
Nbeing  understood)  into  the  support  of  protection. 
Mr.  Webster,  originally  free  trader  and  hard- 
money  man  by  the  convictions  of  a  sober  and 
clear  reason,  gave  his  support  to  protection  be- 
cause Massachusetts  had  been  turned  from  a 
commercial  into  a  manufacturing  State,  and,  as 
he  thought,  could  not  go  back.  He  advocated 
the  bank  originally  for  the  purpose  of  checking 
paper  issues  by  hundreds  of  petty  banks.  In 
the  party  contest  he  found  himself  committed  to 
the  bank  so  far  that  he  could  not  draw  back  even 
if  he  wished.  Mr.  Calhoun,  a  protectionist  in 
1816,  when  it  was  thought  that  cotton   needed 


HISTORY  OF  AMERICAN  CURRENCY.      93 

protection,  turned  free  trader  when  the  South 
came  to  bear  the  burden  of  protection  without 
any  benefit.  Thus  it  appeared  to  be  a  mere 
question  of  interest.  If  Thomas  H.  Benton's 
story  is  correct,  the  compromise  tariff  of  1833  was 
made  to  save  Mr.  Calhoun  from  a  trial  for  trea- 
son, and  to  enable  Mr.  Clay  to  retire  from  a  po- 
sition from  which  he  found  it  impossible  to 
advance  on  account  of  his  enemies,  or  to  re- 
treat on  account  of  his  friends.  Looking  at  the 
history  of  these  three  men,  one  is  forced  to  be 
lieve,  that  if  any  one  of  them  had  been  less 
politic  and  more  honest  to  his  convictions,  he 
might  have  been  far  more  successful.  It  remains 
yet  for  some  statesman  to  show  that  the 
commonplaces  about  "  yielding  to  circum- 
stances "  and  "  doing  what  you  can  "  are  only  a 
petty  wisdom  ;  that,  so  far  from  being  the  grand 
principles  of  politics  in  a  republic,  the  latter  is  just 
the  place  for  that  man  to  succeed  who,  by  show- 
ing that  he  understands  himself,  and  knows 
whither  he  wants  to  go,  proves  to  the  mass  that 
he  is  fit  to  lead.  The  time  must  come  when  the 
people  will  learn  that  to  rule  by  the  small  men  is 


94      HISTORY  OF  AMERICAN  CURRENCY. 

the  most  expensive  and  ruinous  of  all  methods  of 
government.  History  will,  moreover,  set  its 
verdict  upon  the  position  of  the  South  in  1832, 
selling  their  product  in  a  free  market  and  buy- 
ing their  manufactures  in  one  loaded  by  obstruc- 
tive taxation ;  that,  although  the  means  they 
employed  were  unlawful,  and  their  conversion 
to  free  trade  was  due  to  self-interest,  yet  their 
grievance  was  great  and  their  protest '\vas  just. 
Probably  this  will  come  about  when  the  farmers 
of  the  West,  who  have  inherited  the  grievance 
of  the  South,  shall  have  learned,  as  they  will 
learn,  what  it  is  which  really  afflicts  them,  and 
shall  have  broken  the  system  to  pieces.  The 
history  we  have  now  to  follow  will  show  that 
when  existing  political  organizations  take  up 
scientific  questions  as  party  capital,  they  use 
them  only  to  support  ambition,  and  the  questions 
reach  no  satisfactory  or  permanent  solutions. 
It  is  a  vital  question  for  the  republic  whether 
parties  shall  form  and  reform  around  issues  as 
they  arise,  or  whether  the  issues  shall  arise  under 
and  inside  of  permanent  party  organizations. 


HISTORY  OF  AMERICAN  CURRENCY.      95 

WAR    BETWEEN  THE    ADMINISTRATION  AND 
THE  UNITED  STA  TES  BANK. 

In  1832  the  bank  petitioned  for  a  renewal  of 
its  charter  which  was  to  expire  in  1836.  In 
speaking  in  favor  of  a  renewal,  Mr.  Webster 
said  : 

"  A  disordered  currency  is  one  of  the  greatest 
political  evils.  It  undermines  the  virtues  neces- 
sary for  the  support  of  the  social  system,  and  en- 
courages propensities  destructive  to  its  happi- 
ness. It  wars  against  industry,  frugality,  and 
economy,  and  it  fosters  the  evil  spirits  of  extrav- 
agance and  speculation.  Of  all  the  contrivances 
for  cheating  the  laboring  classes  of  mankind, 
none  has  been  more  effectual  than  that  which  de- 
ludes them  with  paper  money.  This  is  the  most 
effectual  of  inventions  to  fertilize  the  rich  man's 
field  by  the  sweat  of  the  poor  man's  brow. 
Ordinary  tyranny,  oppression,  excessive  taxation, 
these  bear  lightly  on  the  happiness  of  the  mass 
of  the  community,  compared  with  fraudulent  cur- 
rencies and  the  robberies  committed  by  depreci- 
ated paper.     Our  own  history  has  recorded  for 


96      HISTORY  OF  AMERICAN  CURRENCY. 

our  instruction  enough,  and  more  than  enough, 
of  the  demoralizing  tendency,  the  injustice,  and 
the  intolerable  oppression  on  the  virtuous  and 
well  disposed,  of  a  degraded  paper  currency, 
authorized  by  law,  or  any  way  countenanced  by 
government." 

The  bill  passed  both  Houses,  and  was  vetoed 
by  the  President  on  the  ioth  July.  It  being  now 
evident  that  the  bank  must  expire  unless  some 
influence  could  be  brought  to  bear  to  change  the 
President  or  win  two-thirds  of  Congress,  a  vio- 
lent warfare  was  begun  by  the  bank.  The 
power  of  its  interest  at  the  time  is  attested 
by  any  amount  of  evidence.  Mr.  Wm.  Gouge 
published  his  work  on  the  History  of  Paper 
Money  in  1833,  in  which  he  blears  the  strong- 
est testimony  to  the  power  of  the  bank  corpo- 
rations throughout  the  country.  The  expressions 
used  now  in  the  West  in  regard  to  railroad 
corporations  are  not  stronger  than  those  used 
by  many  writers  at  the  period  under  review  in  re- 
gard to  "  banking  " — by  which  they  meant  the  is- 
sue and  loan  of  notes  nominally  convertible  but 
really  inconvertible,  and  thus  subject,  in  their  ex- 


HISTORY  OF  AMERICAN  CURRENCY.      97 

pansions  and  contractions,  to  nothing  but  the  will 
of  the  bankers  themselves.  It  is  certain  that  the 
banks  paid  no  more  heed  to  the  laws  of  the  State 
than  they  did  to  the  laws  of  prudence  or  of 
banking  science,  and  that  they  paid  very  little 
heed  to  either.  This  veto  was  the  cause  of  some 
genuine  anxiety  and  of  some  manufactured  fears 
in  regard  to  the  business  future,  and  played  a 
prominent  part  in  the  political  canvass  of  1832. 
Jackson  defeated  Clay,  the  latter  representing 
bank,  tariff,  and  internal  improvements,  by  288 
to  49  in  the  electoral  college. 

The  President,  in  his  message  in  December, 
1832,  recommended  the  sale  of  the  seven  millions 
stock  of  the  United  States  Bank  which  was 
owned  by  the  nation,  and  the  appointment  of  a 
committee  to  investigate  its  affairs.  Bank  shares 
fell  from  112  to  104,  but  on  a  favorable  report  by 
the  Treasury  agent  they  recovered  to  112.  This 
report  showed  over  seventy-nine  millions  assets ; 
liabilities,  thirty-seven  millions  ;  leaving  forty-two 
millions :  thirty-five  millions  capital,  and  seven 
millions  surplus.  But  when  the  Government  de- 
sired to  pay  the  three  per  cents.,  in  July,  1832, 
5 


98       HISTORY  OF  AMERICAN  CURRENCY. 

the  bank  agreed  to  pay  the  interest  on  them  un- 
til October,  if  the  payment  might  be  delayed  so 
long.  It  then  negotiated  a  loan  of  five  millions 
from  Barings  to  make  the  payments  of  drafts  on 
government  deposits  held  by  it,  which  would  be 
made  to  carry  out  the  payment  of  this  stock. 
The  reason  given  for  negotiating  this  loan  was 
fear  of  cholera.  These  operations  raised  ques- 
tions of  the  safety  of  the  public  deposits,  but  the 
Committee  of  Ways  and  Means  (Polk  dissenting) 
offered  a  resolution  that  the  deposits  were  safe. 
It  was  passed,  109  to  46.  The  motion  to  sell  out 
the  public  shares  was  lost,  102  to  91,  through 
the  influence  of  the  bank,  which,  as  was  after- 
wards discovered,  had  a  large  number  of  debtors, 
attorneys,  and  stockholders  in  the  House. 

THE  COMPROMISE  TARIFF. 

In  1833  was  passed  the  compromise  tariff,  by 
which  duties  were  reduced  gradually  to  20  per 
cent,  in  1842.  This  tariff  was  deceptive  and  com- 
plicated. It  had  no  principle  of  economic  science 
at  its  root — neither  protection  nor  free  trade.  It 
.  was  patched  up  as  a  concession,  although  it  really 


HISTORY  OF  AMERICAN  CURRENCY.      gg 

made  very  little,  and  its  provisions  were  so  in- 
tricate and  contradictory  that  it  produced  little 
revenue.  Specific  duties  were  unaffected  by  it, 
and  these  included  books,  paper,  glass,  and 
sugar.  It  did  not  run  its  course  without  impor- 
tant modifications  in  favor  of  protection,  for  it 
could  not  bind  future  Congresses,  and  the  doc- 
trine of  the  horizontal  rate  of  20  per  cent. — a 
doctrine  which  has  no  scientific  basis — produced 
an  increase  on  many  articles.  It  raised  the  cost 
of  cheap  woollens,  much  worn,  and,  as  it  did  not 
provide  for  any  other  source  of  revenue,  it  was 
certain  that  it  could  not  last.  It  was  a  compro- 
mise between  Clay  and  Calhoun  only,  but  it  gave 
Calhoun  the  chance  to  say,  as  he  did  often,  that 
the  warlike  attitude  of  South  Carolina,  in  1832, 
coerced  national  legislation.  It  taught  Southern- 
ers to  believe  that  a  warlike  attitude  was  all 
which  was  necessary ;  and  the  violation  of  the 
act  in  1842  was  used  with  immense  force  to  jus- 
tify the  repeal  of  the  Missouri  Compromise.  It 
would  lead  me  away  from  my  present  subject  to 
unravel  the  effects  of  the  tariff,  but  I  insist 
strenuously  upon  this,  that  the  political  and  finan- 


IOO    HISTORY  OF  AMERICAN  CURRENCY. 

rial  history  of  the  country  are  interwoven 
throughout,  and  that  neither  the  currency  nor  the 
tariff  nor  the  politics  can  be  satisfactorily  treated, 
save  as  a  whole.  Take  the  statistics,  and  review 
them  in  view  of  the  tariff  only,  and  your  in- 
ferences are  vitiated  by  the  currency.  Take  the 
same  data,  and  look  at  the  currency  only,  and 
you  go  astray  because  you  neglect  the  tariff. 
Neglect  the  political  intrigues  which  wove  the 
two  together,  and  you  cannot  explain  the  motives 
of  legislation.  You  argue  from  the  authority  of 
common  conviction,  when  the  true  explanation  is 
log-rolling. 

REMOVAL  OF  THEt  DEPOSITS. 

After  Congress  adjourned^September  22,  1832, 
-fh^-f^eskbot , ordered  Mr.  Duane,  the  Secretary 
of  the  Treasury,  to  remove  the  public  deposits 
from  the  United  States  Bank.  He  refused  to  do 
so,  and  was  displaced  by  Mr.  Taney,  who  did  it. 
The  order  was  that  collectors  should  send  no 
more  money  to  the  bank,  but  to  authorized  de- 
positories, to  be  chosen  amongst  the  State  banks. 
There  was  no  positive  and  sudden  transfer  of  the 


HISTORY  OF  AMERICAN  CURRENCY.    IOi 

amount  in  bank,  but  it  was  proposed  to  draw  for 
it  at  the  proper  intervals. 

The  war  was  now  in  full  blaze.  The  bank  had 
circulated  documents  during  the  canvass  of  the 
previous  year,  showing  its  services  and  merits. 
Against  this  proceeding  I  see  no  valid  objec- 
tion. The  documents  were  "  political,"  because 
the  question  of  the  bank's  existence  had  become 
political.  It  was  justified  in  defending  itself. 
But  in  August,  1833,  it  altered  its  policy.  It 
rapidly  contracted  its  loans,  giving  as  a  reason 
the  necessity  of  providing  for  the  transfer  of 
the  deposits,  a  reason  which  the  facts  did  not 
warrant. 

On  the  assembling  of  Congress,  December, 
1833,  the  message  announced  the  step  taken,  giv- 
ing as  grounds  the  misconduct  of  the  bank  in  at- 
tempting to  control  the  election,  and  the  unsound- 
ness of  the  institution.  The  President  also  charged 
the  bank  with  now  creating  an  artificial  strin- 
gency in  order  to  make  itself  appear  necessary  to 
the  community.  The  bank  question  occupied  a 
great  part  of  the  session.  Mr.  Clay  attacked 
the  President  for  removing  the  Secretary.     The 


I02    HISTORY  OF  AMERICAN  CURRENCY. 

Senate  resolved  (28  to  18)  that  the  reasons  for  re- 
moving" the  deposits  were  unsatisfactory,  and  that 
the  President  had  usurped  unconstitutional  power 
over  the  Treasury  by  removing  the  Secretary. 
The  House  never  noticed  the  resolution,  but  re- 
solved (134  to  82)  that  the  bank  ought  not  to  be 
rechartered  nor  the  deposits  restored. 

DISTRESS  OF  1834. 

The  recharter  of  the  bank  being  now  defi- 
nitely refused,  a  number  of  small  banks  were  or- 
ganized to  take  its  place.  But  before  they  could 
get  into  operation  the  contraction  of  the  bank  had 
time  to  operate  upon  the  market.  Many  deputa- 
tions came  up  to  Congress  to  complain  of  distress, 
and  many  memorials  were  sent  up.  The  excite- 
ment was  great  throughout  the  country.  It  was 
asserted,  however,  on  the  other  side,  that  all  this 
distress  was  manufactured  by  the  bank  interest, 
in  order  to  gain  a  recharter,  and  that  loans  were 
refused  to  some  and  granted  freely  to  others,  who 
used  them  to  charge  usurious  rates.  Benton 
asserts  that  two  cases  were  discovered,  one  in 
which  a  broker  received  $1,100,000  to  use  in  this 


HISTORY  OF  AMERICAN  CURRENCY.    IO? 

way,  for  which  he  charged  2\  per  cent,  per  month. 
Prices  did  fall  very  slightly  in  1834  as  compared 
with  1833,  taking  them  over  80  articles,  but  some 
advanced,  and  the  fall  on  none  was  great. 

The  aggregate  amount  of  loans  and  of  circu- 
lation in  the  country  increased  steadily  all  these 
years.*  I  have  not  been  able  to  find  any  state- 
ment of  the  loans  of  1833,  but  the  circulation,  even 
of  the  United  States  Bank,  was  not  contracted  in 
1834,  and,  taking  the  whole  number  of  banks,  there 
was  an  increase.  The  business  of  the  country 
was  increasing  quite  as  rapidly,  and  it  is  impossi- 
ble to  ascribe  the  fluctuations  of  prices  to  the  sole 
action  of  the  currency.  The  fears,  real  or  manu- 
factured, of  a  crisis  on  the  winding  up  of  the  na- 
tional bank,  account  for  the  decline  which  took 
place. 

CHANGES  IN  THE  COINAGE. 

By  the  law  .of  1789  the  exchange  of  sovereigns 
(1  r  of  a  guinea)  for  American  coin  was  fixed  at 
$4.44*.  It  is  not  known  how  this  ratio  was  de- 
termined.    The  old  exchange  of  a  Mexican  dol- 

*  See  table,  p.  107. 


104    HISTORY  OF  AMERICAN  CURRENCY. 

lar  was  4s.  6d.  sterling,  but  Gallatin  says  that  there 
was  no  specimen  of  that  coin  which  was  worth 
this  estimate.  The  coinage  law  under  which 
coins  were  first  struck  in  1794  and  1795  fixed  the 
ratio  of  gold  to  silver  at  1  to  15,  the  silver  dollar 
being  416  grains,  371.25  grains  pure,  and  the 
gold  dollar  27.0  grains,  24.75  g"rains  pure,  the  al- 
loy counting  for  nothing.  The  actual  rate  of  gold 
to  silver  was  at  that  time  different  in  different 
X  countries,  but  in  England  it  was  15.2  to  1.  Gold 
was  therefore  underrated  in  the  coinage,  and  it 
was  easier  for  a  debtor  to  get  silver  to  the  amount 
of  one  dollar  than  gold  to  the  amount  of  one  dol- 
lar. Silver  accordingly  became  the  real  measure 
used,  and  gold  bore  a  premium. 

The  contents  of  a  sovereign  are  1 13.001  grains 
(full  weight  123.274),  supposing  it  to  be  up  to 
standard,  916J  in  the  1000  fine.  Our  mint,  in 
1839  and  again  in  1863,  declared  it  to  assay 
only  916.5  in  the  1000.  At  the  ratio  of  15.2  to  1, 
371.25  grs.  pure  silver  would  be  equal  to  24.424 
grs.  pure  gold,  and  a  sovereign  would  be  worth 
$4,626  of  American  silver.  In  American  gold  the 
same  coin  would  be  worth  $4,565.     In  1831  Gal- 


HISTORY  OF  AMERICAN  CURRENCY.     IC>5 

latin  took  i5.6_toj^as_the  existing  ratio  in  Eng-  * 
land,  at  which  rate  a  sovereign  was  worth  $4.75 
in  our  silver.  The  difference  between  the  coin- 
age rating  and  the  true  value  of  the  metals  was 
thus  greater  in  1830  than  in  1795,  and  gold  was 
at  a  premium,  on  the  average,  in  1830,  of  five  per 
cent,  selling  price. 

The  figures  above  given  show  the  par  of  the 
coins  grain  for  grain,  but  coins  are  worth 
more  than  bullion,  being  manufactured,  that  is,  an 
ounce  of  gold  in  coin  must  buy  more  goods  than 
an  ounce  of  gold  in  bullion.  The  difference  is 
the  cost  of  manufacture.  Gallatin  says  that  it  took 
two  months  to  coin  bullion  left  at  the  mint,  which 
involved  a  loss  of  one  per  cent,  interest.  There 
was  no  seigniorage  or  charge  for  coining.  In 
England  there  was  no  seigniorage,  and  the  loss 
of  interest  was  represented  by  the  difference  be- 
tween the  mint  price  of  bullion,  £3  ijs.  io\d.  per 
ounce,  and  the  market  price,  which  was  then  gen- 
erally £3  ijs.  6d.*  that  is,  it  cost  \\d.  to  get  an 
ounce    coined.      If  coins   are   exported  they  lose 


*  Since  1844  the  Bank  is  obliged  by  law  to  give  its  notes  at  £3  17^.  gd 
for  all  bullion  offered,  reducing  the  difference  between  coin  and  bullion. 
5* 


lo5    HISTORY  OF  AMERICAN  CURRENCY. 

the  value  of  their  own  coinage,  and  must  pay  that 
of  the  country  to  which  they  go.  Freight  and 
insurance  must  also  be  paid.  The  cost  of  coin- 
ing here  being  one  per  cent.,  the  cost  of  freight 
etc.,  one  per  cent,  more,  and  the  cost  of  English 
coinage  a  slight  addition,  coin  could  not  be  ex- 
ported  unless  exchange  was  a  fraction  over  two 
per  cent,  above  par.  When  an  American  had  to 
pay  $4,656  to  discharge  one  pound  sterling  debt, 
he  would  ship  gold.  He  could  not  ship  silver  to 
profit  until  he  had  to  pay  $4,845  for  a  pound 
sterling.  From  1795  until  182 1  exchange  was 
almost  always  favorable  to  this  country.  After 
1 82 1  it  often  ruled  adverse.  Gold  was  shipped. 
The  following  table  from  Senate  document  290, 
1st  Ses.  26th  Congress,  shows  the  movement  from 
1 824-1 833,  the  gold  and  silver  not  having  been 
separated  before  1824  in  the  returns.  The  fig- 
ures are  in  thousands : 


HISTORY  OF  AMERICAN  CURRENCY. 


107 


GOLD  BULLION'. 


1824 

1826 
1827 


I830 
I83I 
1832 


Excess  of 
Imports 


11. 9 

1 51.0 

100.5 

82.4 

55-9 

85-3 

104.6 

144-5 
94.4 
21.4 


Excess 
of  Ex 
ports. 


GOLD  COIN. 


SILVER  BULLION. 


Excess  of  i  Excess  of 
Imports.   J  Exports. 


34-9 

62.5 

127.9 

199.0 


231.0 
"67.6 


189.8 
229.0 


133-5 
16.1 


Excess  of 

Imports. 


3*9-4 
357-9 

436-9 
4I9-3 
422.4 
623.2 
1,025.1 
482.7 
480.9 
297.8 


Excess 
of  Ex 
ports. 


SILVER  COIN. 


'xcess  of  Excess  of 
Imports.     Exports. 


998.9 


:,n6.7 
478.9 


2,612.8 
5,553-5 


102.6 

4.438.4 


3,127.8 


349-3 
1 44. 1 


The  following  table  shows  the  amount  of  both 
metals  coined  in  the  same  years,  two  figures  be- 
ing omitted : 


GOLD. 

SILVER. 

1824 

193-2  0 

$i,752-4 

1825 

156.3 

1,564.5 

1826 

99.2 

2,002.0 

1827 

131-5 

2,869.2 

1828 

140. 1 

i,575-6 

1829 

295.7 

i,994-5 

1830 

643.1 

2,495-4 

1831 

714.2 

3-175-6 

1832 

798.4 

2,579.0 

1833 

978.5  ./ 

2,759.0 

The  strong  movement  of  metal  to  this  country 


r 


To8    HISTORY  OF  AMERICAN  CURRENCY. 

is  apparent.  In  great  part  it  was  a  real  transfer 
of  capital.  Of  all  the  gold  which  came  in  and  was 
coined  the  Secretary  of  the  Treasury  said,  1836, 
that  not  over  $1,000,000  remained  in  the  country 
in  1834,  "and  of  that  small  amount  only  a  very 
diminutive  portion  was  in  active  circulation." 
The  fact  is  certain  that  the  law  of  the  mint  p-ave 

o 

the  country  a  silver  currency  only,  and  that  gold 
was  exported  or  melted. 

The  par  of  exchange  with  Great  Britain  re- 
mained at  $4.44,  and  this  being  taken  as  100,  ex- 
change was  quoted  at  105,  106,  etc. 

These  circumstances  had  attracted  attention  at 
various  times,  and  efforts  had  been  made  to 
change  the  law.  Congress,  however,  hesitated 
to  touch  so  delicate  a  matter  as  the  coinage, 
especially  as  even  experts  could  not  tell  accu- 
rately what  the  real  ratio  of  gold  to  silver  was. 
President  Jackson,  being  determined  to  introduce 
a  specie  currency,  the  matter  was  necessarily 
taken  in  hand.  By  an  act  of  June  28th,  1834,  the 
gold  eagle  was  made  to  weigh  258_grs.,  standard 
.899225,  that  is,  its  pure  contents  were  232  grs., 
or  23.20  grs.  to  the  dollar.     Under  this  regula- 


HISTORY  OF  AMERICAN  CURRENCY.    IOg 

tion  silver  was  to  gold  as  16  to  i.  This  ratio 
was  fixed  upon  in  a  blaze  of  exultation  about  the 
recent  discoveries  of  gold  in  North  Carolina, 
which,  though  known  to  exist  since  1801,  had 
only  been  developed  since  1828,  and  extravagant 
hopes  were  entertained  of  finding  "  a  new  Peru  " 
in  the  mountains  of  Georgia  and  the  Carolinas. 
It  was  thought  by  some  that  it  would  "encourage 
the  miners  "  to  overrate  gold  in  the  coinage.  In 
1837  silver  and  gold  were  both  made  exactly 
nine-tenths  fine,  but  the  pure  contents  of  the  sil- 
ver dollar  remained  the  same  as  before,  the  gross 
weight  being  reduced  to  412.5  grs.  The' gold 
dollar  now  contained  23.22  grs..  fine. 

There  were  two  different  dollars  after  these 
changes,  as  much  as  before.  The  silver  dollar 
remained  as  before,  but  the  gold  dollar  was  now 
worth  less  than  before.  The  gold  dollar  had  for- 
merly been  worth  in  the  silver  coinage  $1,038, 
taking  the  true  ratio  to  be  15.6  to  1,  which  was 
asserted  by  the  best  authorities  to  be  the  true  one 
at  that  time.  The  new  gold  dollar  was  worth,  at 
the  same  ratio,  in  the  same  coin,  97.5  cts.  As 
before  no  one  would  pay  a  debt  with  gold  dollars, 


HO    HISTORY  OF  AMERICAN  CURRENCY. 

so  now  no  one  would  pay  with  silver  dollars. 
Silver  went  out  of  circulation  and  became  the 
better  metal  to  export,  while,  for  the  same 
reasons,  gold  became  the  better  remittance  this 
way.  The  only  silver  which  could  circulate  here 
was  that  which  was  worn  or  clipped  until  it  was 
not  worth  more  than  silver  was  rated  at  in  our 
coinage.  All  the  worn-down  Spanish  pillar 
pieces  came  here,  because  they  had  a  value  here 
higher  than  anywhere  else  in  the  world.  While 
the  mint  was  coining  fine  American  pieces,  scarcely 
one  was  to  be  seen  in  circulation.  The  people 
were  obliged  to  use  the  smooth  shillings,  which 
produced  a  quarrel  at  almost  every  exchange  as 
to  whether  you  could  "see  the  pillars,"  until 
somebody  "crossed"  them,  and  they  sank  into 
unquestionable  dimes.  They  were  generally 
overrated  at  that. 

Thus,  according  to  the  great  principle  which  has 
governed  our  fiscal  legislation  down  to  the  pres- 
ent time,  the  discovery  of  gold  in  the  United 
States  was  made,  as  far  as  the  intention  of  the 
legislators  could  do  it,  to  render  gold  more 
expensive  to  the  people  of  the   United    States 


HISTORY  OF  AMERICAN  CURRENCY,    m 

than  it  had  ever  been  before.  The  absurdity  of 
attempting  to  influence  the  price  of  gold  must, 
however,  be  plain  to  every  one.  We  might  as 
well  attempt  to  gain  time  for  the  American  peo- 
ple by  passing  a  law  that  all  clocks  should  lose 
an  hour  a  day. 

Prices  of  goods  adjusted  themselves  to  the  - 
new  dollar.  The  relations  of  gold  to  silver  and 
to  goods  the  world  over  remained  unaltered,  and 
the  adjustment  of  values  by  the  exportation  of 
silver  and  importation  of  gold  went  on  in  spite  of 
all  laws.  The  experiment  cost  every  creditor 
2.5  cts.  on  every  dollar  due,  and  the  wrong  bore 
immense  interest  when  this  action  of  the  govern- 
ment was  made  a  basis  of  argument,  in  the  legal- 
tender  cases,  to  prove  that  Congress  had  the  con- 
stitutional right  to  issue  legal-tender  paper,  and 
interfere  with  existing  contracts,  because  it  had 
already  debased  the  coinage — that  is,  in  the  mid- 
dle of  the  nineteenth  century  the  United  States 
had  committed  the  greatest  wrong  charged 
against  the  tyrants  of  the  middle  ages,  and  one 
which  no  modern  despot  had  dared  to  repeat, 
and    therefore    it    had    a    right    to    perpetrate 


< 


112    HISTORY  OF  AMERICAN  CURRENCY. 

another  folly  which  is  not  yet  quite  so  thoroughly 
exposed. 

The  pound-sterling,  being  now  reckoned  in  the 
current  gold  of  this  country,  was  worth  $4.8665, 
if  of  full  weight  and  standard.  This  dollar,  23.22 
grains  of  gold,  ninth-tenths  fine,  remains  still  the 
definition  of  "one  dollar"  in  the  United  States. 
Other  coinage  laws,  to  be  mentioned  below,  have 
never  touched  this.  The  par  of  exchange  for  the 
sovereign  has  also  remained  unchanged,  but,  as 
the  coinage  expenses  must  be  lost  by  export,  light 
coins  which  cannot  be  current  in  England  are 
sent  here  as  bullion.  The  mint,  in  1863,  reported 
sovereigns  worth,  when  new,  $4.8391  ;  on  the 
average,  $4.8206.  The  old  par  $4.44,  being  re- 
tained, actual  par  was  1.09-JL.  The  Chamber  of 
Commerce  of  New  York  petitioned,  in  1839,  that 
this  system  of  reckoning  might  be  changed,  and 
the  exchange  quoted  in  dollars  and  cents.  This 
was  never  done  until  1873,  and  January  1,  1874, 
the  method  of  quoting  4.86,  4.87,  etc.,  came  into 
use.  In  1853  the  law  imposed  a  seigniorage  of 
one-half  of  one  per  cent  for  coining.  The  par  of 
$4.86  is  "ideal."     If  the  sovereign  weighed  and 


HISTORY  OF  AMERICAN  CURRENCY,    u^ 

assayed  up  to  this,  the  seigniorage  in  this  country 
for  recoining  would  reduce  its  value  to  $4.84. 
If  the  cost  of  transporation  was  one  per  cent.,  no 
sovereigns  could  come  until  they  were  down  to 
$4.80.  If  the  mint  assay  is  to  be  taken,  they 
could  not  come  until  they  were  worth  only  $4.78. 
For  the  same  reasons  American  gold  coin  is  worth 
one-half  of  one  per  cent  more  in  coin  than  as 
bullion.  This  is  lost  when  it  is  shipped.  Shipment 
costs  something  over  one  per  cent.  Taking  these 
expenses  all  together  at  two  per  cent.,  if  $4,866 
of  our  coin  is  worth  ^1,  no  one  will  pay  more 
than  $4,957  for  exchange  before  shipping.  If 
$4.84,  are  worth  one  sovereign,  coin  will  be 
shipped  at  $4,936,  gold. 

In  1873  Congress  fixed  the  Custom  House 
valuation  of  a  sovereign  at  $4.86.  It  will  be  seen 
that  while  we  charge  a  seigniorage  of  one-half  of  vtfW 
one  per  cent.,  the  sovereign  cannot  be  worth  over 
$4.84,  the  old  Custom  House  valuation.  This 
change  added  one-half  of  one  per  cent,  to  the 
invoice  valuation  of  all  English  goods  subject  to 
ad  valorem  duties. 


II4    HISTORY  OF  AMERICAN  CURRENCY. 

WAR   WITH  THE  BANK  CONTINUED. 

In  the  message,  December,  1834,  the  President 
made  known  to  Congress  that  the  bank  had  re- 
tained dividends  due  the  nation  on  its  stock,  to 
reimburse  itself  for  a  draft  on  the  French  govern- 
ment which  it  had  negotiated,  and  which  had  not 
been  honored  because  the  treaty  had  not  been 
ratified  by  the  French  Chambers.  The  bank  was 
forced  by  suit  to  pay  the  dividends. 

He  also  said  that  the  bank,  after  contracting 
its  loans  from  August,  1833,  to  June,  1834,  had  as 
suddenly  extended  them.  The  amount  was  sev- 
enteen millions.  He  took  this  as  proof  that  the 
previous  curtailment  had  been  wanton  and  un- 
necessary, and  placed  the  bank  in  the  position  of 
having  manipulated  the  money-market  solely  to 
carry  its  own  point. 

In  fact  the  bank,  finding  that  other  banks  were 
taking  its  place,  and  that  it  was  robbing  itself 
without  coercing  the  public,  had  changed  its 
course.  . 

The  deposits  were  now  put  in  designated  banks 
which  issued  no  small  notes,  and  which  kept  one- 


HISTORY  OF  AMERICAN  CURRENCY. 


"5 


third  of  their  circulation  represented  by  specie. 
Many  banks  bought  or  imported  gold  in  order  to 
meet  this  latter  requirement.  The  general  gov- 
ernment  also  used  its  influence  successfully  with 
nearly  all  the  States  to  have  lav/s  passed  forbid- 
ding small  notes. 

SMALL  NOTES. 

The  prohibition  of  small  notes  is  a  measure 
which  is  simple,  but  very  important  for  the  re- 
sults it  effects.  The  principle  is  that  paper  is- 
sues displace  coin  of  equivalent  denominations. 
If  paper  is  issued  for  sums  of  $,o  and  above,  it 
may  be  issued  to  the  amount  of  the  coins  of  that 
and  higher  denominations  which  the  public  re- 
quire, and  no  more.  If  issued  for  $5,  the  paper 
may  be  increased  by  the  amount  of  haif-eagles, 
which  the  public  formerly  used,  and  no  more. 
Therefore,  if  it  is  desired  to  use  paper  to  a  certain 
extent,  but  not  to  displace  specie  entirely,  the 
simplest  way  to  accomplish  this  is  to  limit  the 
paper  to  a  certain  denomination,  say  $10.  Then 
half-eagles,  and  pieces  of  $3.00,  $2.50,  and  $1 
would  circulate,  and  would  form  a  stock,  which, 


Il6    HISTORY  OF  AMERICAN  CURRENCY. 

in  the  absence  of  any  usury  law,  might  be  drawn 
into  bank  in  a  crisis.     At  the  same  time,  this  re- 

v  striction  goes  far  to  make  convertibility  genuine. 
Convertibility  in  the  currency  is  like  conscien- 
tiousness in  a  man — it  has  many  grades,  and  is 
valuable  in  proportion  as  it  is  strict  and  pure. 
The  prohibition  of  small  notes  does  more  than 
any  other  arbitrary  rule  to  ensure  convertibility. 
It  also  secures  to  the  poor  the  use  of  a  value  cur- 
rency for  their  exchanges,  and  to  the  whole  com- 
munity the  same  currency  for  the  exchanges  which 
are  made  for  consumption.  These  principles  were 
recognized  in  England  in  1827,*  when  the  notes 
under  £5  were  abolished,  and  President  Jackson's 
administration  sought  to  .put  them  in  operation 
here.  The  Scotch  banks  still  issue  £1  and  £2 
notes,  but  they  manage  them  very  conservatively, 
and  their  example  furnishes  no  argument.  They 
seem  to  be  such  sagacious  bankers  as  to  need  no 
limitations ;  therefore  they  do  not  need  this  one ; 

I  but  when  limitations  are  needed,  this  is  the  sim- 

1   plest  and  most  efficacious. 

Such    were    the    movements    up    to    1835,    to 

*  See  page  302. 


HISTORY  OF  AMERICAN  CURRENCY,     uy 

which  the  subsequent  developments  must  be 
traced  as  their  origin.  The  lowering  of  the 
standard  caused  a  rise  in  prices.  The  easy 
credit  obtained  in  England  for  stocks  and  securi- 
ties, the  low  rates  for  money  here  on  account 
of  the  multiplication  of  small  banks  and  increase 
of  capital  devoted  to  banking,  the  actual  strong 
and  great  development  of  the  country,  combined 
to  encourage  a  spirit  of  speculation  and  enter- 
prise which,  in  this   country,  have  never  needed 


RAILROAD  BUILDING. 

To  show  the  actual  development  which  was  in 
progress,  it  is  sufficient  to  notice  the  number  of 
miles  of  railroad  built  in  these  years.  Railroad 
building  was  not  a  subject  of  unhealthy  specula- 
tion, and  the  crisis  did  not,  as  it  appears,  stop  an 
unnatural  development  in  this  respect,  but  rather 
checked  a  species  of  enterprise  which,  without 
it,  might  have  gone  on  to  produce  great  and 
healthy  prosperity. 


Il8    HISTORY  OF  AMERICAN  CURRENCY. 


MILES    BUILT. 


1830.  . . .    none  built.    23  in  operation.      1837 

1831 72 

1832 134 


1834- 

1835. 
1836 


151 

253 
465 
175 


MILES  BUILT. 

1837. 

...  224 

18,8. 

. . .  416 

1839. 

...  389 

1840. 

...  516 

1841. 

...   717 

1842. 

...  491 

1843. 

...  r5? 

teJt* 


.  H7- 


SPECULATION 


The  object  on  which  speculation  fixed  especially 
was  real  estate,  either  in  the  Eastern  cities  or 
the  Western  States.  The  improved  communica- 
tion with  the  East  by  the  Erie  Canal  (built  in 
181 7-1825)  had  done  wonders  for  the  develop- 
ment of  the  territory  bordering"  on  the  lakes. 
The  advance  in  values  there  had  been  of  the  kind 
to  produce  a  speculative  mania.  In  1835  the 
canal  was  enlarged  and  its  benefits  increased  in 
a  far  greater  ratio,  but  the  speculative  mania 
outstripped  all  reason.  It  did  not  follow,  from 
any  of  the  facts  of  the  case,  that  mere  speculative 
holders  in  the  East  could  realize  quick  and  solid 
p-ains  from  Western  lands.  The  advantage  of 
improved  communication, fell  suddenly  on  those 
already  settled. in  the  West,  and  promised  sure 


HISTORY  OF  AMERICAN  CURRENCY.    119 

and  steady  development  to  those  who  should  settle 
there  and  wait,  but  nothing  more. 

The  progress  of  this  mania  is  best  shown 
by  the  returns  of  sales  of  public  lands.  (Sums 
in  millions.) 


1833 
1834. 
1835. 
1836. 

1837. 
1838, 


$3-9 

4-8 

24.8 

6.7 

3-o 

I 

City  real  estate,  especially  in  New  York  and 
some  of  the  Southern  cities,  was  also  a  favorite 
subject  of  speculation.  New  York  gained  by 
the  canal,  becoming  from  that  time  the  emporium 
of  the  country,  but,  according  to  a  table  given 
by  Grosvenor,  New  York  city  real  estate  was  as- 
sessed at  309,000,000  in  1836,  and  it  did  not  again 
reach  300,000,000  until  1851. 

The  advance  in  the  Southern  cities  was  due  to 
the  advance  in  cotton,  and  that  had  its  causes  in 


England. 


L  i  i)  R  A  it  1 

UNIVERSITY  OF 

CALIFORNIA 


X 


120    HISTORY  OF  AMERICAN  CURRENCY. 

AFFAIRS  IN  ENGLAND. 

After  1832  the  monopoly  of  the  Bank  of  Eng- 
land was  restricted  to  a  circle  of  65  miles  around 
London.  Within  that  circle  strong  joint-stock 
banks  were  formed,  on  unlimited  liability,  to  do  a 
true  banking  business,  discount  and  deposit,  but 
without  issues  of  notes.  Beyond  that  limit  joint- 
stock  banks  were  formed,  which  did  issue  notes 
on  the  American  or  Scotch  plan.  They  called  it 
the  Scotch  plan,  but  they  managed  it  more  in 
the  American  fashion.  This  extension  of  bank- 
ing fell  in  with  the  industrial  development  already 
noticed,  and  with  a  great  prosperity  of  cotton, 
silk,  and  iron  manufactures,  and  with  a  series  of 
good  crops.  The  natural  consequences  followed 
— rising  prices  of  manufactures,  cheap  food, 
demand  for  raw  materials,  easy  credit,  and  hope- 
ful speculation.  The  rapid  increase  of  capital 
encouraged  railroad  building  and  American  in- 
vestment. 


HISTORY  OF  AMERICAN  CURRENCY.    I2i 

COTTON. 

The  effect  on  cotton  is  the  one  which  most  in- 
terests us. 

The  average  prices  for  the  year  1833  were, 
11J-  and  131  cents,  and  for  1834,  \\\  and  I3f. 
For  1835  the  prices  were  : 

Jan.  Feb.        March.        April.        May.  June.  July. 

15-18    15-17    15-17    15-18    16-I9    17-19    I7-20 

Aug.  Sept.  Oct.  Nov.        Dec.  Average. 

T7-I9    17-19    I5-l8    14-18    14-16    15^-18 

This  was  at  a  time  when  the  supply  was  in- 
creasing both  from  this  country  and  from  India, 
but  it  was  now  certain  that  cotton  was  to  be  the 
great  American  staple  until  the  abolition  of  corn 
laws  in  Europe.  Even  at  this  time  there  was  a 
duty  of  3  cents  per  lb.  on  cotton,  levied  in  1790 
to  secure  the  "  home  market." 

It  therefore  appeared  that  the  Southern  cities 

were  to  see  great  prosperity  as  cotton  markets, 

and  at  Mobile  especially  the  speculation  in  real 

estate  was  great.      To  borrow  Grosvenor's  fig- 
6 


> 


122    HISTORY  OF  AMERICAX  CURRL 

ures  once  more,  real   estate  in  Mobile  was  as- 
sessed as  follows : 

teLlBDOK  BOLLS. 

1534         ^COO-COO        *    980 

1535         6,000.000        788 

1836         18,000.000        6l7 

1837         27,000,000         836 

1838     20,000,000     i-4^7 

In  1848,  with  1,217  polls,  the  assessment  was 
just  under  nine  millions.  The  cotton  culture 
does  not  require  nor  build  up  great  cities. 

BAXK  EXPAXSIOX. 

The  following  table  shows  the  bank  expansion 
throughout  this  period.  It  is  taken  from  Condy 
Raguets  "  Currency  and  Banking,"  and  the  cir- 
culation of  specie  is  added  from  the  report  of  the 
Secretary  of  the  Treasury,  1837  (sums  in  mil- 
lions) : 


HISTORY  OF  AMERICAN  CURRENCY. 


I23 


_ 
si 


1820 
1830 
1834 

1835 

1836 

1837 
1838 

1839 
1840 


213 
282 
406 
515 
559 
632 
663 
662 
661 


J- 

z 

■ 

I 

: 

J 

z.  ' 

95 

308 

48 

330 

200.4 

100 

506 

324.I 

43 

558 

365-I 

8 

567 

457-5 

2 

634 

525-1 

663 

485-6 

840* 

492.2 

61 

9OI* 

462.8 

19.8  44.8 

22.1  61.3 

. . . .  94-8 

43  -9  103.6 

40.  140.3 

37.9  149.1 
35  1  n6.i 
45-i  135,-1 
33.1  106.9 


13M 

145.1   Oct.  1833,  4. 

200.     Jan.  12. 


231.2 
251.8 
290.7 
3176 
327.1 

358.4 


18. 

23- 

28. 


(It  will  be  observed  that  the  banking  capital 
went  on  increasing.  The  banking  capital  of  this 
country  in  1854  was  only  332  millions.) 

It  will  be  evident,  from  the  facts  already  stated, 
that  the  movements  of  this  period  had  their  ori- 
gin in  a  number  of  natural  and  legitimate  causes. 
The  removal  of  the  deposits  from  the  United 
States  Bank  gave  a  great  stimulus  to  the  crea- 
tion of  small  banks,  which  could  not  go  on  in 
safety  save  under  a  strict  system  of  convertibility. 
The  administration  thus  pulled  down  with  one 
hand  what  it  built  up  with  the  other,  by  trying 
to  introduce  a  specie  currency.     The  bank  ex- 

*  Branches  counted  separately. 


124    HISTORY  OF  AMERICAN  CURRENCY. 

pansion,  however,  was  not  properly  a  cause.  Tt 
simply  went  along  with  and  sustained  a  move- 
ment whose  causes  were  independent.  It  is  a 
very  easy  method  of  explaining  mercantile  and 
industrial  movements  to  ascribe  them  entirely  to 
expansions  and  contractions  of  the  currency, 
but,  on  a  currency  even  nominally  convertible, 
the  currency  inflation  does  not  lead  off.*  The 
mania  for  sudden  riches  gets  possession  of  the 
community,  and  the  banks  fall  in  with,  aid,  and 
stimulate  it.  The  blame  cannot  be  simply 
thrown  upon  the  banks  for  "causing"  the 
trouble.  They  have  a  certain  function  to  per- 
form,  and  they  fail  to  be  faithful  to  it,  and  this  fail- 
ure takes  off  the  legitimate  check  to  over-specu- 
lation. Banks  collect  the  capital  of  the  country 
from  the  hands  in  which  it  lies  idle,  and  transfer 
it  to  those  who  lack  capital,  but  could  use  it  to 
advantage.  Over-speculation  is  speculation 
which  outstrips  the  capital  of  the  country.  It  .is 
the  pitfall  which  stands  always  open  in  a  new 
country.  The  banks  being  thus  the  transfer 
agents  through  whose  hands  the  capital  passes, 

*  See  page  253. 


HISTORY  OF  AMERICAN  CURRENCY.    ^5 

are  the  ones  to  know  and  give  warning  when  it 
is  used  up.  This  they  should  do  naturally  by, 
raising  the  rate  of  discount,  and  the  usury  law, 
which  makes  this  impossible,  is  fairly  chargeable 
with  a  large  share  of  the  mischief  which  is  | 
usually  ascribed  to  bank  expansions.  For,  the 
capital  passing  out  of  the  bank  in  the  form  of 
discounts  and  bank-notes,  the  bank  has  no 
means  of  profiting  by  the  increased  demand  for, 
and  value  of,  capital  save  by  increasing  these 
items,  that  is,  passing  over  to  the  most  perilous 
forms  of  credit,  while  the  public,  obtaining  the 
notes  which  represent  capital  and  those  which 
are  credit,  precisely  in  the  same  form,  and,  at 
first  at  least,  on  the  same  terms,  has  no  warning 
when  the  line  is  passed. 

Condy  Raguet  gives  descriptions  of  ordinary 
bank  operations  in  the  period  before  us,  which 
were  reckless  in  the  extreme,  but  they  were 
nearly  all  devices  for  evading  the  usury  law. 
Men  who  had  embarked  in  speculations  clamored 
for  increased  issues  on  any  terms,  in  a  manner 
which  has  become  very  familiar  to  our  experi- 
ence.    They  formed  a  public   opinion  which  for- 


126    HISTORY  OF  AMERICAN  CURRENCY. 

bade  any  one  to  test  the  foundations  of  credit. 
The  enhanced  prices  and  expanded  credit  con- 
tinually absorbed  the  new  issues,  and  no  depreci- 
ation occurred  until  a  shock  to  credit  and  prices 
from  outside  causes  produced  a  collapse.  The 
banks  suspended,  escaped  the  results  of  their 
share  of  the  folly,  and  loaned  their  irredeemable 
notes  at  high  rates ;  but  the  public,  conscious 
that  it  had  been  humored  in  its  wish  by  the  ex- 
cessive issues,  could  not  be  severe  with  them.  It 
is  idle  for  either  party  to  blame  the  other.  They 
went  hand-in-hand  in  folly. 

Affairs  on  the  other  side  of  the  water  were  in 
much  the  same  condition.  There  was  a  new  de- 
mand for  capital  there  also.  The  new  joint 
stock  banks  in  England,  and  similar  institutions 
in  Belgium  and  France,  pursued  much  the  same 
course,  though  not  to  the  same  degree,  as  our 
banks.  The  note  issues  of  the  Bank  of  England 
and  of  the  joint-stock  banks  were  not  excessive 
and  did  not  increase,  but  the  methods  of  banking 
pursued  by  the  latter  were  such  as  to  call  down 
blame  from  those  who  had  favored  joint-stock 
banks  most  zealously,  and  the  rule  observed  by 


HISTORY  OF  AMERICAN  CURRENCY.    12j 

the  Bank  of  England  at  this  time  did  not  prove 
Nsound  in  practice.  

"DISTRIBUTION"  OR  "DEPOSIT"    OF  SURPIUS 
REVENUE. 

The  session  of  1835-6  was  not  marked  by 
financial  legislation,  save  by  one  plan  proposed 
this  year  and  carried  out  the  next,  which  added 
a  new  element  to  the  financial  situation.  If  there 
is  any  property  which  is  of  little  value,  real  estate 
or  stocks,  some  plan  is  sure  to  be  proposed  for 
selling  it  to  city,  town,  State,  or  nation.  If  the 
nation  or  any  subordinate  body  holds  any  prop- 
erty, stocks  or  real  estate,  which  is  valuable,  some 
one  raises  the  question  what  to  do  with  it  ?  The 
answer  is  :  Why  do  anything  ?  If  the  public  owns 
good  property,  why  not  keep  it  ?  But  an  intrigue 
for  bringing  about  the  sale  is  very  sure  to  be 
planned  by  those  who  want  to  buy,  or  for  divid- 
ing by  those  who  want  to  receive.  The  lands 
owned  by  the  general  government  have  always 
been  subject  to  such  intrigues,  and  at  the  period 
under  review  many  schemes  were  proposed  for 
dividing  them  among  the  States,  though  none  of 


128    HISTORY  OF  AMERICAN  CURRENCY. 

them  actually  received  shape  in  Congress.  A  still 
more  attractive  object  for  distribution  appeared 
in  the  surplus  revenue.  The  public  debt  was  now 
nearly  extinguished.  It  stood  on  the  ist  January 
in  each  year  as  follows,  in  millions.* 

1832     24.3 

1833     7-o 

1834 4.7 

i835      o37 

1836     3 

1837     3-3 

1838 10.4 

1839     3-5 

1840     5.2 

1841      13-5 

1842     20.6 

There  was  a  surplus  in  the  Treasury,  and  it 
was  anticipated  that  there  would  be  a  surplus 
until  the  compromise  tariff  was  in  full  effect,  of 
nine  millions  a  year  on  the  average.  Mr.  Clay 
wanted  it  divided.  Mr.  Calhoun  introduced  the 
subject.  He  at  first  wanted  the  Constitution 
amended  to  satisfy  certain  scruples  of  his,  but 
soon  dropped  this  notion.  Mr.  Webster  favored 
the  division.    The  administration  opposed  it,  and 

*  Finance  Report,  1872,  p.  374. 


HISTORY  OF  AMERICAN  CURRENCY.     j2g 

wanted  the  lands  surveyed  and  sold  at  $1.25  per 
acre,  with  a  homestead  provision  for  actual  set- 
tlers, surplus  revenue  to  be  spent  on  national  de- 
fences. The  bill  for  distributing  the  income  from 
lands  sold  to  the  States  passed  the  Senate,  but 
never  came  up  in  the  House.  The  Senate  passed 
a  bill  in  1836  for  "  depositing"  the  surplus  rev- 
enue (being  regarded  as  the  part  which  came  from 
land)  with  the  States,  subject  to  call.  The  plan 
for  distribution  found  no  chance  in  the  House, 
but  that  for  "  depositing  "  was  passed  by  a  large 
majority.  It  was  declared  that  the  name  only  was 
changed  and  that  the  "  deposits  "  could  never  be 
recalled,  and  so  the  event  proved,  but  the  protest 
was  unheeded.  The  President  unwillingly  signed 
the  bill,  this  being  the  session  before  the  Presi- 
dential election.  In  his  next  message,  Decem- 
ber, 1836,  he  expressed  his  fears  of  the  measure, 
but  that  whole  session  was  agitated  by  schemes 
for  distributing  land  and  revenue,  and  a  second 
"deposit"  scheme  for  the  surplus  of  1837  was 
passed  by  the  House  as  a  rider  on  an  appropria- 
tion bill.  The  Senate  not  concurring,  the  entire 
appropriation  bill  was  lost. 

G* 


13° 


HISTORY  OF  AMERICAN  CURRENCY. 


PUBLIC  CLAIMS. 


Several  outstanding  claims  of  the  United  States 
for  embargo  damages  and  blockade  captures 
against  France,  Spain,  Portugal,  Naples,  and 
Denmark  were  settled  at  this  time,  and  the  pay- 
ments were  imported  in  specie  in  1837,  in  fur- 
therance of  the  plan  for  a  specie  currency.  The 
coin  was  used  in  public  payments,  and  in  the  first 
instalment  of  the  distribution. 

THE  "SPECIE  CIRCULARS 

On  the  nth  July,  1836,  the  President  issued 
the  famous  "  Specie  Circular,"  by  which  he  or- 
dered agents  for  the  sale  of  public  lands  to  take 
in  payment  only  specie.  It  was  based  on  the  old 
law  of  18 16,  mentioned  above,  by  which  the  Secre- 
tary was  ordered  to  receive  only  specie,  or  Treas- 
ury notes,  or  notes  of  specie-paying  banks.  The 
notes  of  Eastern  banks  were  carried  West  for  a 
"  good  circulation,"  and  "  coon-box  banks  "were 
set  up  in  the  Western  States,  which  issued  notes 
in  easy  loans  to  land  speculators.  These  notes 
were    practically    inconvertible,    and    might    be 


HISTORY  OF  AMERICAN  CURRENCY.    131 

issued  in  any  amount.  The  consequence  was 
that  the  title  to  land  was  passing  to  specula- 
tors, and  the  Treasury  was  being  filled  with 
worthless  paper.  The  best  justification  of  this 
measure  was,  as  Benton  says,  that  ten  millions  of 
paper  on  its  way  to  the  Land  Office  was  arrested 
by  this  circular. 

When  Congress  met  (December,  1836)  it 
passed  an  act  rescinding  the  specie  circular,  after 
a  long  and  acrimonious  debate.  The  bill  wa$ 
not  sent  to  the  President  until  the  day  before  the 
close  of  the  session,  and  he  did  not  sign  it,  so 
that  it  did  not  become  law.  In  the  course  of  the 
debate  there  were  abundant  prophecies  of  coming 
trouble.  Mr.  Calhoun  did  not  vote  on  the  bill, 
and  in  giving  his  reasons  said  :  "  He  believed 
the  state  of  the  currency  was  almost  incurably 
bad,  so  that  it  was  very  doubtful  whether  the 
highest  skill  and  wisdom  could  restore  it  to 
soundness,  and  it  was  destined  at  no  distant  day 
to  undergo  an  entire  revolution.  An  explosion 
he  considered  inevitable,  and  so  much  the  greater 
the  longer  it  should  be  delayed." 


132    HISTORY  OF  AMERICAN  CURRENCY. 

THE   PENNSYLVANIA    DANK   OF  THE    UNITED 
STATES. 

The  Bank  of  the  United  States,  whose  char- 
ter had  now  expired,  obtained  a  charter  from 
the  legislature  of  Pennsylvania  in  a  section  of  a 
road  bill,  "by  bribery,  as  subsequent  legislative 
investigation  proved."  It  had  not  yet  paid  back 
the  government  stock  or  the  government  divi- 
dends, and  it  continued  to  reissue  the  notes  of 
the  old  United  States  Bank  which  it  received. 

THE  CRISIS. 

One  effect  of  the  changes  in  the  coinage  in 
1834  had  been  to  make  gold  the  better  remittance 
this  way.  This  being  the  metal  on  which  Eng- 
lish banking  was  based,  the  movement  had 
importance  for  the  English  banking  and  com- 
mercial world  which  silver  remittances  had  never 
had.  In  April,  1 836,  the  gold  reserve  of  the  JSank 
of  England  began  to  be  lowered.  This  went  on 
all  summer.  The  speculation  had  also  reached 
a  point  at  which  the  rise  was  stayed.  The  Bank 
rate  was  raised  to  4^-  in  July,  and  5  in  September. 


HISTORY  OF  AMERICAN  CURRENCY.    ^3 

American  bills  were  refused  discount.  Prices  fell 
and  money  was  withdrawn.  A  Parliamentary 
report,  which  criticised  the  joint-stock  banks  se- 
verely, added  to  the  prevailing-  uneasiness.* 

In  November,  1836,  the  Agricultural  Bank  of 
Ireland  and  the  Northern  and  Central  Bank  of 
Manchester  were  in  difficulties  which  forced  them 
to  call  on  the  Bank  of  England  for  aid.  They 
received  it  on  condition  of  winding  up.  This 
was  the  first  blow  of  the  crisis  which  convulsed 
Europe  and  America:  The  shock  upon  the  Lon- 
don Exchange  developed  weakness  in  three 
houses  doing  large  business  with,  and  giving 
extended  credit  to,  this  country,  t  The  importa- 
tions here  had  been  very  rapidly  increasing,  and 
had  been  extraordinarily  large  in  1836.  Taking 
merchandise  only,  the  excess  of  imports  over  ex- 
ports had  been  very  large  from  1831  on.  The 
following  table  shows  the  excess  of  imports  or 
exports  of  coin  and  merchandise  during  this 
period : 


*  Gilbart's  "  Banking"  ;  Macleod's  Dictionary,  art.  "Banking  in  Eng- 
land"; Tooke's  "Prices,"  Vol.  II. 

f  Wilkes,   Wilde,   and   Wiggins,  celebrated  at  the  time  as   "  the  three 

W's." 


*34 


HISTORY  OF  AMERICAN  CURRENCY. 


MERCHANDISE. 

SPECIE. 

Excess   of    Ex- 
ports. 

Excess    of    Im- 
ports. 

Excess    of    Ex- 
ports. 

Excess    of    Im- 
ports. 

1830 

8,900,000 

5,900,000 

1831 

23,500,000 
1 3, 600,  OOO 
13,500,000 

6, 300, 000 
21,500,000 
52,200  OOO 
19,000,000 

1,700,000 

1832 
1833 
1834 
1835 
IS36 

1837 
1838 

1839 

1840 
1841 
1842 
1843 

200,000 

4,400,000 
1^,000,000 

6,600,000 
9  000,000 
4,500,000 
14,200,000 

9,000,000 

44,200,000 

3,100,000 

25,400,000 

400,000 

11,100,000 

5,000,000 
700,000 

3,800,000 
40,400,000 

20,800,000 

Thus  there  had  been  imported,  according 
to  the  statement,  during  the  six  years  ending  Jan. 
1st,  1837,  over  130,000,000  more  merchandise  than 
had  been  exported,  and  a  net  import  of  specie  in 
the  same  time  of  over  34,000,000.  The  move- 
ment of  the  metals  I  reserve  for  another  section. 
It  is  evident  here  that  the  imports  had  not  been 
paid  for  in  coin,  exported  either  by  the  balance 
of  trade  or  by  the  depreciated  currency.  Allow- 
ance must  be  made  for  the  error  in  all  statements 
of  export  and  import  due  to  the  method  of  esti- 
mating them.  .  The  excess  of  imports  contains 
freights  and  profits.     American  shipping  at  this 


HISTORY  OF  AMERICAN  CURRENCY.    ^5 

time  was  steadily  increasing.  It  increased  in 
spite  of  this  crisis  without  interruption,  and  it  did 
the  larger  part  of  the  American  foreign  trade. 

The  freights,  therefore,  added  little  to  foreign 
payments. 

Due  allowance  being  made,  it  remains  true 
that  the  imports  had  not  been  paid  for  in  mer- 
chandise or  metal.  They  had  been  balanced  by 
securities  exported — in  other  words,  they  had 
been  bought  on  longer  or  shorter  credits.  It 
does  not  appear  from  the  above  figures,  or  from 
any  evidence,  that  any  considerable  amount  of 
securities  was  sent  back  during  the  panic  ;  rather 
the  contrary.  Outstanding  business  obligations 
were,  however,  called  in  by  English  creditors. 

The  revulsion  in  England  had  also  acted  dis- 
astrously on  the  price  of  cotton.  This  ran  for 
the  year  1836  and  the  beginning  of  1837  as 
follows  : 


r836. 
I837- 


43 

c 

J} 

=  £ 

>> 

a 

>> 

bQ 

g. 

.J 

> 

& 

s 

< 

S 

16-19 

•  •— 1 

15-20 

C/3 
12-20 

0 
12-20 

A 

14-16 

14-16 

15-19 

16-IC 

16-I9 

,s-,s 

12-20 

15-17 

14-17 

14-17 

II-I5 

8-12 

... 

18-IJ 


1 

1 3 6    HISTOR  Y  OF  AMERICAN  CURRENCY. 
It  remained  at  the  latter   figures    throughout 

1837- 

Nowhere  had  the  paper-money  mania  raged 
worse  than  in  Mississippi,  where  the  banks 
operated  as  cotton  factors,  manufacturing  money 
to  carry  cotton,  as  they  needed  it.  In  March 
several  New  Orleans  houses  were  in  trouble, 
and  were  forced  to  apply  to  the  banks  there  for 
extra  aid.  Next  the  pressure  was  felt  in  New 
York,  and  by  April  the  crisis  was  general 
throughout  the  country.  There  were  one  hun- 
dred failures  in  New  York  in  March,  and  the 
losses  were  fifteen  millions. 
\  The  New  York  and  Philadelphia  banks,  in- 
cluding the  Bank  of  the  United  States,  made 
advances  to  the  merchants  to  the  amount  of 
$1,500,000;  the  Bank  of  the  United  States 
loaning  bonds  payable  in  London,  Paris,  and 
Amsterdam.  These  bonds  sold  well,  but  at 
rates  which  made  the  loans  cost  the  merchants 
two  per  cent,  per  month,  and  the  United  States 
Bank  held  all  the  best  paper  which  was  running 
to 'maturity.  * 

*  Macleod.     I  have  not  met  with  mention  of  this  elsewhere. 


HISTORY  OF  AMERICAN  CURRENCY,    j^y     ■ 

The  rule  of  the  Bullion  Committee,  *  that 
banks  should  discount  freely  in  the  face  of 
panic,  seems  to  be  here  obeyed  after  a  certain 
fashion,  but  the  committee  contemplated  the 
loan  of  notes  by  a  bank  whose  credit  cannot  fail 
in  the  wildest  panic  ;  not  the  loan  of  post  notes 
(as  these  "  bonds  "  were),  on  which  the  mer- 
chants must  pay  a  second  discount ;  nor  the  loan 
of  notes  of  suspended  banks,  on  which  the  mer- 
chants must  suffer  a  loss.  Their  rule  cannot  be 
obeyed  by  banks  which  work  up  to  the  utmost 
verge  of  capital  and  credit  in  the  best  times,  and 
have  no  margin  for  safety  in  a  crisis.  The  latter 
can  only  suspend,  escape  all  the  results  of  a  folly 
in  which  they  had  full  share,  and  then  loan  their 
notes  at  exorbitant  rates  to  the  merchants  who  . 
are  yet  out  in  the  financial  storm.  This  has 
been  the  process  here  in  every  crisis,  and  prob- 
ably will  be  as  long  as  people  stand  it  without 
complaint,  t 

*  See  page  250. 

f  There  is  a  very  erroneous  opinion  prevalent,  that  the  English  govern- 
ment allows  the  Bank  of  England  to  suspend  in  a  crisis.  There  is  never 
any  question  of  the  kind.  The  run  on  the  Bank  in  a  panic  is  not  for  gold, 
but  for  notes,  that  is,  for  discounts.  If,  however,  there  is  an  export  of  gold 
at  the  time,  the  notes  are  taken  to  the  issue  department  and  gold  de- 
manded.   According  to  the  charter,  the  Bank  can  circulate  only  fifteen  mik 


138    HISTORY  OF  AMERICAN  CURRENCY. 

In  March  a  meeting  was  held  at  New  York, 
which  was  addressed  by  Mr.  Webster.  He 
ascribed  the  distress  to  the  interference  of  the 
government  with  the  currency,  and  to  the  "  specie 
circular."  A  committee  of  fifty  was  sent  to 
Washington  to  ask  for  the  rescinding  of  the  cir- 
cular. In  the  address  to  the  President  (Van 
Buren)  they  said  :  "  The  value  of  our  real  estate 
has,  within  the  last  six  months,  depreciated 
more  than  forty  millions."  "  Within  the  last 
two  months  there  have  been  more  than  two  hun- 
dred and  fifty  failures."  "A  decline  of  twenty 
miHions  of  dollars  has  occurred  in  our  local 
stocks."     "  The    immense    amount    of  merchan- 

lions  in  notes  on  government  security,  and  for  all  other  notes  it  must  have 
gold,  sovereign  for  sovereign.  If,  therefore,  there  is  a  drain  on  its  bullion, 
it  must  contract,  or  keep  all  notes  handed  in  for  gold.  This  heightens  the 
panic.  The  action  of  the  government  is  to  recommend  the  Bank  to  disre- 
gard the  clause  governing  circulation.  It  promises  to  ask  Parliament  for 
indemnity.  The  Bank  then  discounts  freely  for  solvent  parties,  but  at  high 
rates.  This  always  kills  the  panic  as  panic.  The  crisis  runs  its  course. 
Erroneous  assertions  have  been  made  to  the  effect  that  the  whole  cri.is 
comes  to  an  end.  This  is  not  the  case.  Also  that  the  Bank  never  has  to 
avail  itself  of  the  permission.  This  also  is  an  error.  In  1847  and  i366 
there  was  no  over-issue  Prices  fell,  the  exchanges  turned,  gold  came  in, 
and  the  trouble  died  out  in  two  or  three  days,  but  in  1857  the  bank  issued 
,£900,000  more  than  the  law  would  have  allowed.  They  were  retired  again 
within  a  week.  Evidently  when  a  bank  has  over  thirty  million  pounds' 
circulation,  of  which  fifteen  millions  are  secured  on  government  debt,  and 
the  rest  by  coin,  then  ,£900,000  over-issue  cannot  affect  its  credit.  It  has 
a  reserve  strength  which  it  can  put  forth  in  a  panic. 


HISTORY  OF  AMERICAN  CURRENCY.    j-,Q 

dise  in  our  warehouses  has,  within  the  same 
period,  fallen  in  value  at  least  thirty  per  cent." 
"  Within  a  few  weeks  not  less  than  twenty 
thousand  individuals,  depending  on  their  daily 
labor  for  their  daily  bread,  have  been  discharged 
by  their  employers,  because  the  means  of  retain- 
ing them  were  exhausted."  They  ascribe  all 
this,  as  they  say,  not  to  undue  extension  of  mer- 
cantile enterprise,  but  to  the  attempt  to  substi- 
tute a  metallic  for  a  paper  currency,  the  removal 
of  the  deposits,  and  the  specie  circular,  "  which 
withdrew  the  gold  and  silver  of  the  country  from 
the  channels  in  which  it  could  be  profitably  em- 
ployed." "We  therefore  ask  whether  it  is  not 
time  to  interpose  the  paternal  authority  of  the 
government,  and  abandon  a  policy  which  is  beg- 
garing the  people."  In  a  subsequent  meeting, 
at  which  the  committee  reported  that  they  could 
obtain  nothing  from  the  President,  a  resolution 
was  passed  in  which  the  defeat  of  Mr.  Clay's 
land  bill  was  alleged  as  another  cause  of  the 
trouble. 

In  May  a  run  began  on  two  New  York  banks, 
of  which    one   failed.     Three   banks   in  Buffalo 


140  HISTORY  OF  AMERICAN  CURRENCY. 

failed  next.  The  New  York  banks  then  sus- 
pended in  a  body  May  ioth,  a  law  being  passed 
by  the  legislature  to  allow  them  to  suspend  for 
one  year.  Amongst  the  direct  causes  of  suspen- 
sion was  the  demand  upon  the  government  de- 
posit banks  for  the  first  two  instalments  of  the 
40,000,000  surplus  to  be  paid  in  specie  into  the 
State  treasuries,  under  the  deposit-distribution 
act.  These  banks  having  now  stopped  payment, 
the  government  deposits  were  locked  up,  or 
must  be  taken  in  depreciated  notes.  The  other 
banks  throughout  the  Union  followed  the  exam- 
ple of  the  New  York  banks,  the  New  England 
banks  holding  out  longest.  The  notes  of  all  the 
banks  fell  to  a  discount,  specie  disappeared,  and 
notes  of  every  description  were  issued.  The 
New  York  banks  began  to  contract  in  order  to 
be  ready  to  resume,  but  the  actual  diminution  of 
the  circulation  throughout  the  country  was  very 
small.  Nearly  all  the  banks  made  money  out  of 
the  suspension,  and  paid  large  dividends  during 
the  year. 

Two  instalments    of    10,000,000  each    having 
been  paid  in  specie  to  the  States,  one  in  January 


HISTORY  OF  AMERICAN  CURRENCY.    I4j 

and  one  in  April,  under  the  distribution  act,  and 
a  deficit  in  the  revenue  being  probable,  a  special 
session  of  Congress  was  called  for  September, 
the  government  still  attempting  to  continue 
specie  payments. 

The  message  at  the  opening  of  the  extra  ses- 
sion proposed  that  the  Treasury  keep  its  own 
deposits  (the  plan  afterwards  adopted),  and  that 
a  bankruptcy  law  for  banks  and  corporations 
should  be  passed.  Neither  was  passed.  The 
President  made  known  an  estimated  deficit  of 
6,000,000,  and  proposed  to  meet  it  by  retaining 
the  fourth  instalment  of  the  surplus  to  be  dis- 
tributed, and  to  issue  Treasury  notes  to  provide 
for  immediate  necessities.  The  third  instalment 
had  been  paid  on  the  first  of  June  to  the  States 
in  notes.  As  for  demanding  back  the  "deposit," 
no  one  spoke  of  it.  The  States  were  generally 
demanding  the  fourth  instalment. 

The  Treasury  notes  were  issued,  bearing  inter- 
est, and  running  as  low  as  $50.  As  for  the 
fourth  instalment,  the  payment  of  it  was  put  off 
until  January  1,  1839,  an<^  tnen  ma-de  imperative 
on    the   Treasury.     When    the    appointed    day 


1 42    HISTORY  OF  AMERICAN  CURRENCY. 

came,  however,  the  Treasury  had  a  deficit  and 
could  not  pay  it,  and  it  was  abandoned  by  the 
States. 

Some  States  were  led  by  this  distribution  into 
expensive  improvements  and  debt,  others  dis- 
tributed it  per  capita,  a  few  shillings  per  man, 
"  which  was  received  with  contempt  by  some, 
and  rejected  with  scorn  by  others  ;  "  others  di- 
vided it  amongst  the  counties,  and  others  refused 
it.     As  a  measure  of  popularity-hunting,  it  failed. 

We  hear  a  great  deal  of  wailing  about  the 
national  debt,  and  English  history  is  full  of  such 
lamentation,  but  nations  go  on  prospering  while 
the  debt  stands  still,  and  a  forty-million  surplus 
works  demoralization  far  and  wide.  Where  the 
carcass  is,  there  will  the  eagles  be  gathered. 
Recent  experience  shows  us  that,  even  under  a 
great  debt,  when  there  is  a  surplus  revenue 
wrung  from  the  people  by  taxation,  it  is  more 
likely  to  increase  the  appropriations  than  to 
lessen  the  debt.  The  project  for  giving  back  to 
the  people  money  taken  from  the  people  by  tax- 
ation, was  opposed  to  all  sense  and  reason,  and 
the  idea  of  distributing  the  proceeds  of  sales  of 


HISTORY  OF  AMERICAN  CURRENCY.    ^3 

public  lands  in  largesses  was  unstatesmanlike  to 
the  last  degree. 

The  distresses  of  1837  were  aggravated  by  a 
failure  of  the  wheat  crop.  In  that  and  the  fol- 
lowing year  this  country  imported  bread-stuffs 
from  the  Mediterranean. 


MEASURES  FOR  RESUMPTION. 

In  January,  1838,  several  Boston  banks  were 
insolvent.  The  Massachusetts  country  banks 
were  in  bad  condition.  The  best  of  them  had  $1 
in  specie  for  $11  in  circulation,  and  the  worst 
(Berkshire)  1  to  25. 

A  meeting  of  bank  delegates  was  called  by  the 
New  York  banks  for  November  27,  "for  the  pur- 
pose of  conferring  on  the  time  when  specie  pay- 
ments may  be  resumed  with  safety,  and  on  the 
measures  necessary  to  effect  that  purpose."  The 
convention  did  not  meet,  on  account  of  the  refusal 
of  the  United  States  Bank. 

Meantime  the  New  York  banks  had  been  vig- 
orously contracting  to  prepare  for  resumption. 
Their    issues    were    reduced    from    $25,480,000, 


144    HISTORY  OF  AMERICAN  CURRENCY. 

January  i,  1837,  to  $12,920,000,  January  1,  1838. 
The  exchanges  turned  and  gold  flowed  in,  the 
Bank  of  England  sending  ^1,000,000,  an  act 
which  Macleod  vehemently  condemns,  seeing 
that  the  exchanges  were  adverse.* 

Early  in  1838  Congress  passed  an  act  to  for- 
bid the  Pennsylvania  Bank  of  the  United  States 
from  usingold  notes  of  the  United  States  Bank: 
penalty,  on  the  president  or  agents,  fine  not  to 
exceed  $io,coo,  and  imprisonment  not  less  than 
one  nor  more  than  five  years.  Meantime,  the 
bank,  finding  that  it  could  sell  its  post  notes  in 
Europe,  had  issued  more  of  them  and  made  a 
business  of  it. 

April  15,  1838,  a  convention  of  143  bankers 
met  at  New  York,  by  invitation  of  the  New  York 
banks,  to  discuss  resumption.  The  majority 
wanted  to  resume  January  1,  1839,  but  the  New 
York  banks  were  under  the  compulsion  of  State 
law  to  resume  May  10,  1838.     They  resumed  on 


*  In  a  sketch  of  the  life  of  James  G.  King  in  the  Merchants'  Magazine 
for  January,  1854,  it  is  said  that  he  negotiated  this  loan  from  the  Bank  of 
England  to  enable  the  American  banks  to  resume ;  and  the  object  was  the 
ultimate  advantage  from  setting  American  business  once  more  in  opera- 
tion. 


HISTORY  OF  AMERICAN  CURRENCY.    145 

that  day,  and  nearly  all  the  other  banks  in  the 
Union,  except  those  of  Philadelphia,  followed. 
Philadelphia  bills  were  at  a  discount  in  New 
York,  and  prices  were  higher  in  Philadelphia  than 
in  New  York.  A  balance  of  trade  adverse  to 
Philadelphia  arose  between  the  two  cities,  with  a 
movement  of  specie  from  Philadelphia.*  The 
New  York  legislature  passed  a  bill  in  this  year 
providing  for  securing  bank-notes  by  a  deposit  of 
stocks. 

A  committee  of  New.  York  merchants  now 
gave  a  statement  of  the  causes  of  the  suspension 
far  more  correct  to  the  facts  than  the  one  made 
in  the  first  heat  of  excitement.  "  The  immediate 
causes  which  compelled  the  banks  of  the  city  of 
New  York  to  suspend  specie  payments  on  the 
10th  of  May  last  are  well  known.  The  simul- 
taneous withdrawing  of  the  large  public  deposits, 
and  of  excessive  foreign  credits,  combined  with 
the  great  and  unexpected  fall  in  the  price  of  the 
principal  articles  of  our  exports,  with  an  import 
of  corn  and  bread-stuffs,  such  as  had  never  before 
occurred,  and  with  the  consequent  inability  of  the 

*  Condy  Raguct,  Currency  and  Banking. 
7 


1 46    HISTORY  OF  AMERICAN  CURRENCY. 

country,  particularly  in  the  South-western  States, 
to  make  the  usual  and  expected  remittances,  did. 
at  one  and  the  same  time,  fall,  principally  and 
necessarily,  on  the  greatest  commercial  empori- 
um of  the  union." 

In  July,  1838,  the  United  States  Bank  called  a 
convention  of  bankers  at  Philadelphia,  at  which 
it  was  agreed  to  resume  August  13.  The  exam- 
ple of  the  banks  which  had  resumed  made  it  nec- 
essary for  others  to  follow.  Thus,  at  the  end  of 
1838,  the  great  majority  of  the  banks  throughout 
the  country  had  resumed,  at  least  nominally. 
The  Bank  of  the  United  States  had  given  as  a 
reason  for  not  resuming  with  the  New  York 
banks,  that  it  was  bound  to  consider  its  weaker 
brethren.  All  the  questions  between  this  bank 
and  its  enemies  must  be  decided  now  in  view 
of  subsequent  developments,  which  all  went  to 
show  that  the  bank  was  at  this  time  in  no  condi- 
tion to  perform  its  functions,  but  was  working 
mischief. 

lib  it  a  it  Y 

UNIVERSITY  OF 

CALIF' 


HISTORY  OF  AMERICAN  CURRENCY,    i^y 

REVIVAL  OF  BUSINESS. 

.  During  the  year  1838  there  had  been  a  general 
revival  of  trade.  The  Bank  of  England  rate 
was  from  2\  to  31  per  cent,  during  the  whole  of 
that  year.  This  led  to  increased  investments  in 
American  securities.  "  Bonds  of  all  kinds  issued 
by  the  Bank  of  the  United  States,  by  the  various 
States  in  the  Union,  and  by  numerous  private  un- 
dertakings, were  poured  upon  the  English  mar- 
ket, and  found  eager  purchasers."  *  This  served 
as  a  further  extension  of  credit  on  American 
debts  carried  over  by  the  operations  of  the  Bank 
of  the  United  States  and  others  from  the  pre- 
vious crisis.  It  is  important,  as  showing  that 
besides  the  strenuous  efforts  made  by  Americans 
to  pay  (a  fact  to  which  there  is  the  best  testi- 
mony), and  the  amount  lost  in  bankruptcy,  the 
time  for  liquidating  the  debts  of  America  to  Eu- 
rope was  greatly  extended. 

Towards  the  end  of  the  year  there  were 
symptoms  of  further  trouble.  The  exchanges 
became   adverse,   and  the  stock  of  gold  in  the 

*  Gilbart,  "  Banking,"  218. 


1 48    HISTORY  OF  AMERICAN  CURRENCY. 

Bank  of  England  declined  until  October.  In  that 
month  the  Bank  had  ,£2,525,000  in  bullion; 
notes,  ^17,612,000;  and  deposits,  ,£6,734,000. 
In  May  the  rate  was  5  per  cent.  ;  June  20,  5-J  ; 
August  1,  6 ;  September,  6  J.  In  the  autumn 
the  Bank  of  Belgium  failed,  and  there  was  a  run 
on  the  banks  at  Paris.  *  The  Bank  of  England 
borrowed  ,£2,500,000  of  the  Bank  of  France 
through  Barings.  After  October  gold  began 
to  flow  into  England,  and  the  pressure  subsided. 
These  incidents  again  reacted  on  this  country. 
The  suspension  had  not  been  followed  by  any 
great  reduction  of  paper  here,  but  had  rather 
enabled  the  banks  to  go  on  without  reducing ;  only 
at  New  York,  where  they  were  most  exposed  to 
the  action  of  an  adverse  exchange,  and  where 
the  legislature  had  taken  prompt  measures  of 
compulsion,  was  there  a  thorough  reduction. 

THE  BANK  CRASH  OF  1839. 

The  Bank  of  the   United  States    during   the 
year    1838   became   involved   in  cotton  specula- 

*  Macleod. 


HISTORY  OF  AMERICAN  CURRENCY.      I49 

tions,  assuming  the  troubles  to  be  over,  and  buy- 
ing- for  a  rise.  On  the  revival  of  business  in 
England  in  that  year  cotton  did  rise,  and  in  May, 
1839,  it  was  at  16  cents,  but  from  that  time  it  de- 
clined again.  It  was  not  above  12  cents  in  1840 
(September),  not  above  11  cents  in  1841  (Feb- 
ruary), not  above  9  cents  in  1842  (March),  and 
not  above  8  cents  in  1843  (October).  It  did  not 
reach  12  cents  again  until  February,  1847.  To 
the  bank  this  course  of  the  market  was  ruinous. 
It  made  the  utmost  exertions  to  sustain  itself  by 
the  sale  of  bonds  in  Europe,  and  by  issuing 
post  notes  which  were  sold  in  New  York  and 
Boston  at  18  to  24  per  cent,  discount.  Several 
banks  failed  in  different  parts  of  the  Union, 
and  the  struggle  to  sustain  specie  payments 
became  very  severe.  Throughout  the  Western 
States,  especially  in  Michigan  and  Illinois,  the 
failures  were  numerous.  The  banks  of  Missis- 
sippi, which,  as  above  stated,  had  become  exten- 
sive dealers  in  cotton,  of  which  they  were  carry- 
ing large  quantities,  were  nearly  all  ruined,  and 
their  notes,  and  those  of  the  various  joint-stock 
companies  which  had  issued  notes,  were  at  from 


150  HISTORY  OF  AMERICAN  CURRENCY. 

25  to  60  per  cent,  discount.  The  State  of 
Michigan  was  engaged  in  building  railroads,  and 
was  involved  in  debt.  The  roads  were  sold  to 
incorporated  companies  at  a  loss  of  almost  their 
entire  cost.  Alabama  had  created  a  debt  of 
fifteen  millions  to  found  a  banking  system.  This 
was  nearly  all  lost.  In  1838  Mississippi  bor- 
rowed seven  millions  in  bonds  to  found  banks. 
This  debt  was  repudiated. 

It  afterwards  came  out  that  the  Bank  of  the 
United  States  was  carrying  on  operations  at  this 
time  for  which  no  condemnation  could  be  too 
severe.  As  the  New  York  banks  were  stagger- 
ing under  the  effort  to  avoid  new  suspension, 
which  the  United  States  Bank  eagerly  desired, 
it  took  the  step  of  selling  exchange  in  New 
York,  and  using  the  notes  and  checks  obtained  in 
order  to  make  a  run  on  the  New  York  banks  for 
specie,  which  it  shipped  to  meet  the  exchange 
when  it  fell  due.  This  almost  incredible  action 
is  stated  and  described  in  detail  by  Mr.  Cow- 
petthwaite,  formerly  assistant  cashier  of  the 
bank,  in  a  report  of  a  committee  of  stockholders 
in   1841,  which  is  quoted  at  length  by  Benton, 


HISTORY  OF  AMERICAN  CURRENCY.     j$i 

"  Thirty  Years'  View,"  II,  370.  It,  however, 
met  a  fit  reward.  The  United  States  Bank  was 
deeply  in  debt  to  Europe,  and  relied  on  the  suc- 
cess of  its  manoeuvre  to  meet  the  bills,  but  it 
drew  so  rapidly  and  recklessly  that  it  could  not 
send  notice  of  the  drafts,  and  on  the  16th  of  Sep- 
tember, J  839,  one  of  its  drafts  was  refused  at 
Paris.  It  then  tried  to  effect  loans  in  Holland,' 
and,  failing,  it  applied  to  the  Bank  of  England, 
where  the  rate  was  now  6  per  cent.  This  Bank 
was  itself  in  as  severe  straits  as  at  any  time  in 
its  history,  but  it  loaned  a  small  sum.  Macleod 
quotes  the  New  York  Evening  Post  on  the 
operations  of  the  bank  at  home,  showing  that  it 
owed  from  ten  to  twenty  millions  in  New  York 
and  $800,000  in  Boston.  It  appears  that  the 
prestige  of  the  bank  was  not  broken  until  this 
time,  and  that  the  question  between  it  and  its 
opponents  was  held  open.  On  the  10th  of  Oc-  ( 
tober,  1839,  it  closed  its  doors  and  was  followed  ( 
by  nearly  all  the  banks  in  the  South  and  West. 
The  New  England  and  New  York  banks  held 
out  bravely,  but,  taking  the  country  over,  this  was 
the  real  collapse  of  the  banking  system   which 


152 


HISTORY  OF  AMERICAN  CURRENCY, 


had  been  growing  up.  343  out  of  850  banks 
closed  entirely,  and  62  partially.  Of  the  govern- 
ment deposits  some  two  millions  were  lost. 

The  second  suspension  lasted  in  Pennsylvania 
until  June  15,  1841,  being  limited  by  statute. 
As  soon  as  the  Bank  of  the  United  States  opened 
a  run  upon  it  began,  and  it  closed  finally  on  Feb- 
ruary 4,  1 84 1.  This  led  to  a  third  suspension, 
and  specie  payments  were  not  definitely  resumed 
until  March  18,  1842. 

The  London  Bankers'  Circular  *  said  that  four 
million  pounds  sterling  of  the  stock  of  the  United 
States  Bank  was  held  by  Englishmen,  ^20,000 
by  the  people  of  Guernsey.  Its  capital  was  a 
total  loss,  and  the  seven  millions  United  States 
stock  subscribed  into  the  capital  of  the  bank  by 
the  government  is  mentioned  by  the  Secretary  of 
the  Treasury  (Finance  Report,  1872,  p.  18)  among 
the  items  of  the  debt  for  which  no  cash  ever 
came  into  the  Treasury,  i.e.,  it  was  created  for 
this  purpose. 

The  speculation  in  Western  lands  and  city 
lots   burst   in    1837,   but  the   banks  escaped  by 

*  Quoted  by  Benton. 


HISTORY  OF  AMERICAN  CURRENCY.    153 

.suspension.  As  will  be  seen  by  the  table 
given  above,*  the  currency  was  not  greatly  re- 
duced in  1837  and  1838,  and,  as  will  be  seen  by 
the  diagram  opposite  p.  227,  prices  of  staple  ar- 
ticles were  arrested  in  their  fall  in  1838.  The 
blow  fell  upon  speculative  investments,  articles  of 
luxury,  and  imported  articles,  the  prices  of  which 
always  feel  paper  inflation  most.  Nor  was  the 
fall  of  prices  from  1839  to  1843  due  to  any  forced 
contraction  of  the  currency.  The  more  correct 
explanation  of  the  phenomena  is  that  the  des-f 
truction  of  the  banking  system  brought  with  it 
a  collapse  of  the  industry  of  the  country.  The 
revulsion  was  so  complete  that  it  could  not  be 
arrested  until  industry  came  almost  to  a  stand- 
still and  took  a  fresh  start.  1841  was  considered 
comparatively  a  year  of  prosperity,  but  on  Jan- 
uary 1,  1844,  the  banks  held  forty-six  millions  in 
specie  against  forty-four  millions  of  circulation, f  ,  J 
and  money  was  easy  at  31  and  4  per  cent.  The 
year  1843  was  one  of  the  gloomiest  in  our  indus-  ( 
trial  history.     The   grand  promise  of  ten  years 

*  Page  107. 

f  Hunt's  Magazine,  July,  1844.    The  returns  were  probably  incomplete. 


154    HISTORY  OF  AMERICAN  CURRENCY. 

before  was  now  entirely  obscured.  Mortgaged 
property  was  passing  into  the  possession  of 
mortgagees.  Factories  were  idle.  Trade  was 
dull,  investments  slow.  All  the  natural  advanta- 
ges of  the  country  were  present  unimpaired,  but 
the  haste  to  realize  them  had  brought  ruin  which 
time  only  could  repair.  The  year  1843  was  one 
in  which  the  ideal  of  some  economists  was  real- 
ized. We  exported  forty  millions  more  merchan- 
dise than  we  imported,  and  we  imported  twenty 
millions  more  specie  than  we  exported,  but  the 
significance  of  these  facts  was  simply  this  :  we 
were  paving  up  for  the  grand  times  of  the  years 
before,  It  was  like  the  spendthrift  living  low  to 
recover  his  position,  and  we.  were  doing  it  by 
producing"  mainly  tor  export,  at  prices  low 
enough  to  suit  the  creditors.  The  patient  being 
in  this  low  state  the  doctors  gave  him  another 
dose  of  protective  tariff,  and,  as  he  got  better, 
they  have  published  the  case  in  their  almanacs 
ever  since. 


HISTORY  OF  AMERICAN  CURRENCY.     155 

MOVEMENTS  OF  SPECIE,   1830-1840. 

The  cases  we  have  had  to  deal  with  hitherto 
have  presented  us  with  the  simple  phenomenon 
of  the  export  of  the  precious  metals  and  increased 
importations  of  commodities,  due  to  the  repetition 
of  the  grossest  error  possible  in  currency — the  at- 
tempt to  use  two  kinds  of  circulating  medium,  one 
inferior  to  the  other.  In  no  other  way  than  this 
can  a  country  be  "  drained  of  its  specie,"  and  in 
no  other  way  can  a  permanent  and  heavy  "  balance 
of  trade"  against  it  be  brought  about.*  It  may  in- 
deed send  money  abroad  to  support  armies,  or  to 
buy  food,  or  for  foreign  investment,  but  these  are 
arbitrary  acts,  not  effects  of  the  laws  of  trade. 
Their  influence  is  also  slight  and  temporary,  for 
the  specie  tends  at  once  to  return,  if  it  is  needed, 
to  where  it  was.  The  United  States  do  not  need 
to  contemplate  either  of  these  contingencies. 

The  case  now  before  us  is  different.     We  have  ' 
here  a  large  excess  of  imports  over  exports,  a  vitia- 
ted currency,  and  at  the  same  time  a  flow  of  specie 
towards  the  country. 

*  See  p.  263. 


1 56    HISTORY  OF  AMERICAN  CURRENCY. 

The  Secretary  of  the  Treasury  speaks  of  the 
movement  of  specie  which  escapes  the  Custom 
House.  He  does  not  seem  to  place  implicit  re- 
liance on  his  statistics,  and  it  must  be  understood 
of  them  that  they  are  not  trustworthy,  either  as 
to  goods  or  specie,  save  for  general  results.  The 
y  fact,  however,  may  be  accepted  as  true,  that  the 
movement  was  as  here  shown. 

There  were  certain  arbitrary  interferences  with 
the  natural  movement.  The  banks  were  induced 
by  government  regulations  to  import  specie,  and 
the  government  itself  caused  payments  this  way 
to  be  made  in  coin  at  every  opportunity.  By  al- 
tering the  rating  of  gold  to  silver  also  it  made  gold 
a  profitable  remittance  to  this  country  until  the 
metals  and  prices  had  adjusted  themselves  to  the 
new  arrangement.  The  operations  of  the  Bank  of 
the  United  States  in  1839  were  of  a  character  to 
traverse  all  natural  laws,  and  render  scientific 
-  inferences  extremely  difficult. 

None  of  these  things,  however,  could  have 
kept  the  specie  in  the  country,  if  there  had  not 
been  other  causes  at  work. 

Condy  Raguet  says  that  there  were  but  very 


HISTORY  OF  AMERICAN  CURRENCY.     I5; 

few  small  notes  in  the  country  until  after  the  sus- 
pension of  1837.  The  habit  of  calling  for  specie 
had  never  been  formed,  and  it  was  sternly  discoun- 
tenanced by  public  opinion.  It  is  indeed  extraor- 
dinary that,  as  the  currency  increased  so  rapidly, 
it  should  not  have  depreciated,  for  the  fact,  as 
shown  by  public  documents,  is  that  it  did  not  de- 
preciate more  than  the  cost  of  transporting  specie 
from  the  place  of  issue  to  the  place  of  circulation; 
but  this  fact  is  a  strong  support  of  the  opinion 
stated  above,  that  the  bank  expansion  only  kept 
pace  with  the  speculative  expansion  and  rise  of 
prices,  and  that  the  issues,  although  opposed  to  all 
sound  rules  of  banking,  and  sure  in  the  end  to 
prostrate  banks  and  dealers  together,  were  not 
made  faster  than  they  were  called  for. 

Beyond  and  below  all  these  circumstances  we 
must  look  for  a  more  permanent  law  of  the  move- 
ment of  the  metals,  and  we  find  it  in  the  scientific 
principle  which  these  things  only  modify  more  or 
less.  The  metals  move  away  from  the  country  in 
which  prices  are  high  to  the  country  in  which  prices 
are  low,  that  is,  they  go  from  the  countries  where 
they  have  low  value  to  the  countries  where  they 


I58    HISTORY  OF  AMERICAN  CURRENCY. 

have  high  value.  Evidently  in  a  natural  state  of 
things  there  would  be  some  things  in  each  country 
(those  for  whose  production  that  country  has  the 
best  advantages)  which  would  be  lower  in  price, 
would  be  given  in  larger  quantity  for  a  given 
quantity  of  the  precious  metals,  in  that  country 
than  in  others.  The  movement  of  metal  from 
country  to  country  would  in  that  case  be  very 
slight,  but  whenever  the  average  of  prices  in  one 
country  rose  above  the  average  in  others,  an  out- 
flow of  specie  would  bring  them  down  to  the 
level,  and  whenever  they  fell  below  the  average, 
i  an  influx  would  raise  them.  Some  argue  that  high 
1  prices  make  prosperity :  others  that  low  prices 
»  make  prosperity.  High  and  low  prices  are  only 
relative  terms,  and  in  fact  have  no  meaning  when 
we  embrace  the  production  of  the  world.  The  true 
place  for  prices  in  each  country  to  occupy  is  in 
their  due  relation  to  the  general  average  the 
world  over,  for  then  each  country  gets  the  utmost 
possible  gain  from  its  relative  advantage  in  those 
things  which  it  can  produce  best.  The  movement 
of  specie  would  therefore  be,  if  the  whole  world 
used  the  metals  and  regulated  prices  by  them 


HISTORY  OF  AMERICAN  CURRENCY.     159 

without  interference,  as  regular,  as  self-controlled, 
and  as  beneficent  as  the  movement  of  the  tides. 
This,  too,  is  the  grand  fundamental  reason  why  in- ' 
convertible  paper  is  a  suicidal  folly  in  the  country 
which  adopts  it. 

In  the  case  before  us  prices  were  unduly  in- 
flated by  speculation  and  over-issues  in  nearly  all 
the  countries  of  Europe,  as  well  as  in  this  coun- 
try. Hunt's  Merchant 's  Magazine  for  July,  1844, 
gives  a  table  of  English  prices  showing  that  if 
the  prices  for  fifty  articles  in 

1833  be  taken  as  1,000 

1834  would  be   „  1,099 

1835  "      1,150 

1836  "     v.; ..  1,346 

1837  " 1,133 

This  relative  inflation  in  the  countries  with 
which  our  relatious  were  closest,  shielded  us  from 
the  effects  which  must  have  followed  if  their 
finances  had  been  in  a  sound  condition. 

There  was  one  thing,  however,  which  was 
dearer  here  than  in  Europe,  and  which  therefore 
made  this  the  best  market  for  those  who 
wanted  to  sell  or  lend  it,  and  that  was  capital. 


160    HISTORY  OF  AMERICAN  CURRENCY. 

As  has  been  said  above,  the  country  was  new,  its 
natural  advantages  undeveloped,  and  only  just 
made  available  by  improved  means  of  commmu- 
nication.  The  remuneration  for  all  sorts  of  in- 
vestment was  high.  In  the  crisis  of  1837  the 
crash  was  not  in  production,  but  in  those  real  es- 
tate investments  which  were  to  become  profitable 
■  by  the  results  of  productive  labor.  Even  in  1837, 
and  especially  in  1838,  the  European  invest- 
ments in  American  securities  were,  as  we  have 
seen,  very  large  in  amount.  When  the  Bank  of 
the  United  States  finally  failed  it  owed  the  Bank 
of  England  twenty-three  millions.  Its  failure, 
with  the  total  loss  of  its  capital,  much  of  which 
was  owned  in  Europe,  the  failure  of  many  injudi- 
cious enterprises,  and,  above  all,  the  repudiation 
of  indebtedness  by  several  of  the  States,  ruined 
American  credit  abroad.  Up  to  1840,  however, 
that  credit  had  been  high,  and  it  was  acknowl- 
edged that  in  1837  the  American  merchants  had 
generally  exerted  themselves  to  the  utmost  to 
meet  their  obligations.  These  continual  loans 
and  investments  from  Europe  kept  down  the  ex- 
changes.   They  were  transferred,  as  far  as  it  was 


HISTORY  OF  AMERICAN  CURRENCY.    161 

profitable  to  do  so,  in  goods,  for  the  rest,  in 
specie,  and  the  surplus  import  of  merchandise 
and  specie,  was,  in  great  part,  a  real  transfer  of 
capital  highly  advantageous  to  all  parties  con- 
cerned. The  same  may  be  said  in  general  of  that 
"  increasing  indebtedness  to  Europe  "  which  has 
been  going  on  more  or  less  ever  since,  and  has 
caused  so  many  good  people  great  anxiety. 

FINANCIAL  MEASURES  FROM  1840  TO    1850. 

The  second  suspension  of  the  United  States 
Bank  in  1839,  and  its  operations  of  that  year,  cost 
it  a  great  many  of  its  friends.  The  administra- 
tion of  Mr.  Van  Buren  clung  to  the  hard-money 
policy,  and  opposed  any  national  bank.  But  the 
fight  was  not  yet  over ;  in  fact,  the  few  next 
years  were  full  of  financial  legislation  and  of  bat- 
tles over  bank  or  no  bank. 

In  1840  the  Independent  Treasury  Act  was 
passed,  by  which  the  government  was  to  take 
the  custody  of  its  own  funds.  It  was  not  passed 
without  fierce  opposition,  especially  from  those 
who  saw  in  the  specie  circular  the  beginning  ol 
all  the  woes  of  the  country.     As  that  had  with- 


1 62   HISTORY  OF  AMERICAN  CURRENCY. 

drawn  the  support  of  the  government  acceptance 
from  the  bank  issues,  so  this  would  withdraw  the 
public  funds  from  use  as  banking  capital.  The 
specie  circular  did  indeed  withdraw  powerful 
support  from  the  bank-notes,  which  enjoyed 
credit  while  the  government  received  them, 
which  they  did  not  possess  when  refused  at  the 
Treasury,  but  if  A  is  a  man  cf  doubtful  credit, 
and  gains  confidence  by  being  supposed  to  be  a 
friend  of  B,  an  honest  man,  and  if  B  declares  that 
he  is  not  a  friend  of  A,  A  may  lose  the  credit  he 
enjoyed,  and  be  ruined  ;  but  who  except  A  will 
lay  the  blame  of  that  ruin  on  B  ?  The  Independ- 
ent Treasury  Act  accomplished  the  u  divorce 
of  bank  and  State/'  and  we,  who  have  that  battle 
to  fight  over  again,  can  see  in  it  only  wise  states- 
manship. 

It  was  proposed  in  England  that  the  holders  of 
State  bonds  should  try  to  get  Congress  to  as- 
sume the  State  debts  as  had  been  done  in  1791.* 
Sydney  Smith  wrote  a  letter  to  Congress  peti- 
tioning that  this  might  be  done,t  and  represent- 


*  See  page  55. 
f  The  text  of  it  is  in  McCulloch's  Diet.,  Art.  "  Funds.' 


HISTORY  OF  AMERICAN  CURRENCY.    ^3 

ing  that  he  and  other  liberals  had  staked  both 
their  word  and  their  money  on  the  honor  of  the 
American  Republic.  After  a  strong  contest  res- 
olutions were  passed  to  crush  any  hopes  of  suc- 
cess in  such  an  attempt.  The  opposition  was 
based,  not  on  the  impropriety  of  the  assumption 
of  State  debts  by  the  general  government,  but  on 
the  necessity  of  resisting  the  dictation  of  foreign 
bankers.  The  foreign  bankers  were  only  trying 
to  collect  their  debts,  and  this  story,  colored  by 
tradition,  still  injures  American  credit,  especially 
in  England. 

In  1841  Mr.  Harrison  became  President,  and 
called  an  extra  session  of  Congress  for  May  31st 
of  that  year.  This  session  was  held  under  Mr. 
Tyler,  and  was  marked  by  some  of  the  worst 
legislation  ever  passed  since  the  Constitution 
was  adopted.  Mr.  Tyler  had  become  a  whig, 
though  formerly  a  democrat.  To  thi%  he  owed 
his  place  on  the  ticket,  and  it  soon  seemed  to  the 
whigs  that  with  President  Harrison  they  had  lost 
the  victory,  for  which  they  had  waited  so  long 
and  worked  so  hard. 

The  first  act  of  the  session  was  the  repeal  of 


1 64    HISTORY  OF  AMERICAN  CURRENCY. 

the  Independent  Treasury  Act.  Mr.  Clay  had 
proposed  three  other  important  measures  for  the 
session:  a  national  bank,  an  mcrease  of  duties, 
and  a  land  distribution  bill.  Before  any  of  these 
latter  could  be  acted  on,  a  Bankruptcy  Act  was 
introduced  by  the  Senator  from  Mississippi. 
This  act  was  bargained  off  for  the  Bank  Act  and 
the  Distribution  Act,  and  the  three  went  through 
together. 

Benton  says  of  the  Bankrupt  Act :  "  It  applied 
to  all  persons  in  debt — allowed  them  to  com- 
mence their  proceedings  in  the  district  of  their 
own  residence  no  matter  how  lately  removed  to 
it — allowed  constructive  notice  to  creditors  in 
newspapers— declared  the  abolition  of  the  debt 
where  effects  were  surrendered  and  fraud  not 
proved."  He  says  that  the  number  of  men  who 
had  failed  and  wanted  to  get  clear  of  encum- 
brances for  starting  anew  was  estimated  at  one 
hundred  thousand. 

The  Land  Distribution  Bill  was  the  new  form 
of  the  bill  for  assuming  the  State  debts.  The 
income  from  public  lands  (less  than  one  and 
a   half    millions    in    1846)    was    to    be    divided 


HISTORY  OF  AMERICAN  CURRENCY.    i6$ 

imongst  the  States  to  help  them  pay  their  debts 
$200,000).  It  contained  a  proviso  that  if  duties 
above  20  per  cent,  should  ever  be  laid,  this  act 
mould  be  suspended.  When  the  tariff  was 
massed  it  contained  a  proviso  that  it  should  not 
suspend  the  Land  Distribution  Act,  but  it  was 
/etoed. 

The  Compromise  Tariff  had  cut  down  the  rev- 
enue from  customs  without  providing  any  other 
*esource.  During  its  first  years  it  had  produced 
1  surplus,  but  its  last  years,  falling  in  with  the 
'  hard  times,"  had  left  a  deficiency.  The  debt 
ncreased  as  follows  : 

Jan.  1,  1840   $5^25,077.63 

Jan.  1,  1841 6,737,398.00 

Jan.  1,  1842    15,028,486.37 

July  1,  1843 2.7,203,450.69 

From  this  time  it  decreased  until  1847. 

As  for  the  bank,  President  Tyler  took  a  whim 
in  regard  to  the  word  "  Bank."  He  wanted  it  to 
be  called  the  Fiscal  Agent,  or  something  "  fiscal." 
He  vetoed  two  bills  passed  for  incorporating 
such  an  institution,  the  relations  of  which  to  the 


1 66    HISTORY  OF  AMERICAN  CURRENCY. 

Treasury  promised  great  mischief,  if  either  had 
gone  into  operation. 

The  Treasury,  being  still  unable  to  pay  specie 
by  the  failure  of  a  loan  authorized  at  the  special 
Session,  began  to  pay  congressmen  in  Treasury 
notes.  Benton  caused  one  of  the  checks  to  be 
protested  in  January,  1842.  Specie  payments 
were  soon  after  resumed  by  the  government,  and 
\     did  not  cease  until  1862. 

Two  tariffs  having  been  vetoed  in  1842,  be- 
cause they  provided  for  the  distribution  of  the 
revenue  from  public  lands,  a  third  was  passed, 
which  raised  duties  above  twenty  per  cent,  and 
so  suspended  distribution. 

In  1843  the  Bankruptcy  Act  was  repealed, 
having  been  found  in  its  operation  to  be  worse 
for  debtors  than  for  creditors.  The  man  who 
availed  himself  of  it  could  obtain  no  further 
credit. 

Thus  the  legislation  of  these  years  came  to 
nothing  but  the  new  tariff,  and  the  excitement  of 
party  contests  only  served  to  keep  the  country 
anxious,  and  to  restrain  it  from  entering  on  the 
new  career.       The  government  was  now,  how- 


HISTORY  OF  AMERICAN  CURRENCY.    ^7 

ever,  fixed  in  the  hard-money  system,  and  the 
sub-treasury  system,  by  which  it  was  so  entirely 
severed  from  the  money-market  that,  fortunately, 
the  bankers  and  merchants  could  afford  to  laugh 
at  the  insignificance  of  the  government  on  their 
arena.  Its  position  was  never  so  strong  or 
sound  as  when,  in  this  point  of  view,  it  was  most 
ridiculous. 

The  nation  had  too  much  energy  and  too  vast 
opportunities  to  long  remain  inactive.  From 
1844  on,  things  began  to  mend.  Banks  began 
to  expand  once  more  with  the  growth  of  trade. 
Prices  advanced,  and  in  1846  a  new  tariff  once 
more  relaxed  the  restrictions  of  trade.  In  1847 
the  failure  of  the  crops  in  Europe  gave  a  market 
for  bread-stuffs,  of  which  nearly  37^  million  dol- 
lars' worth  were  exported.  The  total  exports  of 
that  year  were  larger  than  for  any  preceding  year, 
158,000,000.  The  imports  of  specie  exceeded 
the  exports  by  more  than  22,000,000.  The  abo- 
lition of  the  corn  laws  in  England  opened  a  per- 
manent market  for  the  surplus  product  of  the 
West,  and  the  settlement  of  that  portion  of  the 
country  took  new  form.     As  soon  as  the  famine 


x 


1 68    HISTORY  OF  AMERICAN  CURRENCY. 

was  felt  in  Ireland,  its  population  began  to  apply 
the  only  true  cure  of  the  trouble — emigration — 
and  the  revolutionary  struggles  on  the  continent 
in  the  year  1848  contributed  to  increase  emigra- 
tion to  this  country  by  their  failure. 

IMMIGRATION. 

FROM   IRE-  TOTAL. 

LAND. 

1845 44,821  114,371 

1846 5^752  154,416 

1847 i°5>536  234,968 

1848 112,934      226,52.7 

•  1849 159,39s      297,024 

The  extension  of  railroads  kept  pace  with  the 
other  developments,  which  it  in  turn  helped  to 
multiply. 

MILEAGE    OF    RAILROADS. 

WESTERN       TOTAL. 
STATES. 

1845 374  4,633 

l846 419  4,93o 

1847 608  5,578 

1848 679  5,996 

1849 727     7,365 

1850 1,276    9,021 

185 1 1,846    10,982 


HISTORY  OF  AMERICAN  CURRENCY.     i<Sg 

Finally,  the  discovery  of  gold  in  California  in 
1847  added  another  powerful  element  to  the  in- 
dustrial development  of  the  time. 


PERIOD  FROM  1850-1862. 

The  outlook  in  1850,  with  abundant  emigra- 
tion, a  new  empire  arising  on  the  Pacific,  the 
prospect  of  becoming  the  granary  as  well  as  the 
cotton-field  of  the  world,  ship-building  increasing 
year  by  year,  and  no  cloud  of  war  or  political 
disturbance  visible,  was  very  flattering.  The 
only  hindrances  to  a*  speedy  realization  of  these 
golden  dreams  were  want  of  capital  and  want  of 
technical  and  scientific  training.  Railroad  build- 
ing at  the  West  must,  in  the  nature  of  things, 
outstrip  the  settlement  of  the  region.  It  is  the 
chief  form  in  which  capital  is  applied  to  the  set- 
tlement of  the  country,  but  evidently  it  is  a  case 
in  which  the  returns  from  the  investment  cannot 
be  immediate,  and  in  every  such  case  in  which 
the  supply  goes  ahead  of  the  demand  there  is 
especial  need  of  care,  foresight,  and  judgment. 

For  the  supply  of  capital   there  was   recourse 


I/Q    HISTORY  OF  AMERICAN  CURRENCY. 

naturally  to  the  older  countries.  The  injury 
clone  to  American  credit  in  1837-40  had  hardly 
yet  been  healed,  but  in  1854  it  was  estimated  by 
the  Secretary  of  the  Treasury,  on  reports  called 
I  for  by  him,  that  there  were  200,000,000  dollars 
worth  of  State,  railway,  and  other  bonds  and 
bank-stock  held  abroad.*  In  1857  the  amount  of 
English  capital  invested  here  was  estimated  at 
400,000,000.  While  naturally  turning  to  the  older 
countries  for  supplies  of  capital,  there  has  always 
been  a  certain  prejudice  here  against  foreign  in- 
vestors. Our  "foreign  indebtedness"  has  been 
a  cause  of  serious  and  sincere  anxiety  to  many, 
but  the  more  we  can  borrow,  so  long  as  we  know 
how  to  invest  it  productively,  the  better,  and  our 
credit — our  power  to  borrow  abroad — is  the  pos- 
session which  it  is  most  essential  for  us  to  pre- 
serve intact. 

CAPITAL  AND  CURRENCY. 

Our  other  resource  when  straitened  for  capital, 
the  one  to  which  we  had  betaken  ourselves  be- 
fore, was  now  also  employed — a  multiplication  of 

*  He  said  that  the  amount  was  not  greater  in  1853  than  in  1S29. 


HISTORY  OF  AMERICAN  CURRENCY.     i;i 

the  paper  representatives  of  capital.  Capital  is 
that  portion  of  all  the  previous  product  of  a  na- 
tion which  at  any  given  time  is  available  for  new 
production.  This  will  be  a  certain  amount  of 
tilled  land,  houses,  buildings,  stock,  tools,  food, 
clothing,  roads,  bridges,  etc.,  etc.,  which  have 
been  made  and  are  ready  for  use  in  producing, 
transporting,  and  exchanging  new  products. 
These  things  are  all  the  product  of  labor,  and  re- 
quire time  for  their  production.  Nothing  but 
labor  spent  upon  them  can  produce  others,  and 
time  is  required  for  this  labor  to  issue  in  new  and 
increased  possessions.  Currency  only  serves  to 
distribute  this  capital  into  the  proper  hands  for  its 
most  efficient  application  to  new  production. 
Banks,  it  must  be  repeated,  only  facilitate  the 
transfer  of  capital  from  hands  where  it  is  idle,  or 
is  distributed  in  too  small  quantities,  into  hands 
by  which  it  will  be  usefully  employed,  being  col- 
lected in  the  necessary  amounts.  Currency, 
therefore,  is  not  capital,  any  more  than  ships  are 
freight ;  it  is  only  a  labor-saving  machine  for 
making  easy  transfers.  Banks  do  not  create 
wealth,  they  only  facilitate  its  creation  by  distrib- 


172    HISTORY  OF  AMERICAN  CURRENCY. 

uting  capital  in  the  most  advantageous  manner.  . 
If,  therefore,  currency  is  multiplied,  it  is  a  delusion 
to  suppose  that  capital  is  multiplied,  or,  if  "money 
is  plenty,"  by  artificial  increase  of  its  representa- 
tives, it  is  only  like  increasing  the  number  of 
tickets  which  give  a  claim  on  a  specific  stock  of 
goods — the  ticket  holders  would  be  deceived  and 
could,  in  the  end,  only  get  a  proportional  divi- 
dend out  of  the  stock.  If  banks  not  only  lend 
capital  but  also  lend  i(  coined  credit,"  some  time 
or  other  a  liquidation  must  come,  there  must  be 
an  effort  to  touch  the  capital  which  the  notes  pre- 
,  tend  to  convey.  Then  it  is  found  that  they  rep- 
resent nothing ;  then  "  credit  breaks  down,"  and 
there  must  be  a  settlement,  a  liquidation,  a  divi- 
dend, and  a  new  start.  We  do  not  get  away 
from  the  facts  at  all.  The  real  amount  of  capital 
which  we  possess  is  divided  up,  and  we  have  to 
make  up  our  minds  that  we  possess  only  50  or 
75  per  cent,  of  what  we  thought  we  possessed. 
We  put  smaller  figures  for  everything,  and  recon- 
cile ourselves  to  smaller  hopes,  but  the  experi- 
ence is  soon  forgotten,  and  the  old  process  of 
inflation  and  delusion  begins  again. 


HISTORY  OF  AMERICAN  CURRENCY.    l73 

Some  have  wondered  that  we  go  on  in  this  way 
with  a  grand  crisis  only  once  in  twenty  years, 
while  the  oldest  and  most  prudent  nations  have 
one  every  ten  years.  The  explanation  no  doubt 
is,  that  the  future  which  we  discount  so  freely 
honors  our  drafts  on  it.  Six  months'  restraint 
avails  to  set  us  right,  and  our  credit  creations,  as 
anticipations  of  the  future  product  of  labor,  be- 
come solidified.  So  lon°f  as  we  understand  that 
we  have  anticipated  future  production,  and  must 
apply  that  production  to  make  good  the  anticipa- 
tions, we  run  on  without  very  great  risk,  but  when- 
ever we  lose  our  heads  in  the  intoxication  of  our 
own  achievements,  look  on  the  credit  anticipations, 
which  are  only  fictitious  capital,  as  if  they  were , 
real,  use  them  as  already  earned,  build  uther 
credit  expansions  upon  them,  do  away  with  our 
value  money  and  export  it  to  purchase  articles  of 
luxurious  consumption,  then  we  bring  a  con- 
vulsion and  a  downfall.  The  mistake  is  then 
realized,  the  lesson  is  taken  to  heart  for  a  little 
while,  but  a  new  generation  grows  up  which  for- 
gets or  never  knew  the  old  experience,  and  the 
mistake  is  repeated.     The  relations  of  trade  are 


1 7 .|.    HISTORY  OF  AMERICAN  CURRENCY. 

often  spoken  of  as  a  machine,  and  such  indeed 
they  ought  to  be — a  complex  machine,  with  parts 
so  regulated  that  it  can  go  on  at  any  speed  and 
for  any  length  of  time,  without  danger  of  any- 
thing more  than  an  occasional  and  temporary  de- 
rangement ;  but  this  reckless,  although  skilful,  ex- 
tension of  groundless  credit  is  more  like  the  per- 
formance of  the  juggler  who  keeps  first  three, 
then  four,  then  five,  and  so  on,  balls  in  the  air  at 
once.  If  he  goes  on  continually  increasing  the 
number,  it  is  physically  certain  that  he  will  sooner 
or  later  miss  one  of  them,  and  the  whole  will  fall 
to  the  ground  in  confusion. 

BANK  EXPANSION 

The  bank  expansion  from  1848-185 1  was  as 
follows : 

CIRC.  DEP.           SPEC. 

1848  ....  128,500,000  108,200,000  46.300,000 

1849  ....  114,700,000  91,100,000  43,600,000 

1850  ....  131,300,000  109,500,000  45,300,000 

1851  ....  155,100,000   128,900,000   48,600,000 

These  figures  are  not  as  trustworthy  as  one 
might  wish.  They  represent  the  status  on  Jan- 
uary 1,  or  as  near  that  date  as  possible,  and  minor 


HISTORY  OF  AMERICAN  CURRENCY.     I7S 

fluctuations  are  not  represented.     A  well -defined 
movement,  however,  was  apparent  before   1851. 
The  currency  set  towards  the  financial  centres, 
country  banks  keeping  their  balances  generally  in 
New  York.     These  balances  were  required  in  the ' 
fall,  and  the  withdrawal  of  them  produced  con 
traction  and  stringency  at  that  season.     Weekly- 
bank  statements    were  not    made  by  any  banks 
until  August  6,  1853,  when  the  New  York  banks/ 
began  the  custom,  and  others  gradually  followed. 

In  1 85 1  there  was  an  export  of  gold  with  un- 
favorable exchange,  and  a  drain  upon  the  banks. 
As  no  reports  were  published,  the  extent  of  this 
drain  was  not  known,  but  a  writer  in  1857  states 
that  it  amounted  to  twelve  millions  in  June  and 
July,  and  that  the  stock  remaining  in  the  New 
York  banks  was  only  six  millions.  The  con- 
sequence was  a  sharp  contraction  and  great  suffer- 
ing, which  finally  caused  the  Secretary  of  the 
Treasury  to  buy  bonds  for  the  relief  of  the  market. 

The  same  course  of  events,  more  or  less 
marked,  occurred  throughout  this  period.  Cur- 
rency flowed  to  New  York  during  the  summer, 
was  loaned  on  call  (interest  being  paid  for  depos- 


Ij6    HISTORY  OF  AMERICAN  CURRENCY. 

its),  was  withdrawn  in  the  fall,  producing  con- 
traction of  loans  and  stringency. 
I  It  was  asserted  at  the  time  that  the  worse  the 
currency  the  more  mobile  it  will  be,  and  the  as- 
sertion is  true ;  but  it  is  still  more  true  that  when 
the  currency  is  unequally  bad  it  will  flow  to  the 
financial  centres.  Gold  was  being  exported  as  a 
commodity  all  the  time,  but  the  exchanges  showed 
the  pressure  of  the  redundant  paper  at  New 
York,  and  caused  a  demand  of  gold  for  export 
with  chronic  overtrading.  This  was,  according  to 
the  doctrines  of  the  Bullion  Report  (discussed  in 
Chapter  II),  a  warning  that  the  issues  were  ex- 
cessive. The  New  York  banks  of  course  felt  the 
weight  of  the  evil.  The  warning  came  to  them 
in  actual  experience,  but  the  pressure  of  the 
country  issues,  which  were  never  regulated  by  the 
exchanges  at  all,  continued,  and  the  metropolitan 
banks  do  not  seem'  to  have  taken  measures  to 
restrain  them. 

The  usury  law,  although  disregarded  in  pri- 
vate practice,  made  it  impossible  for  the  banks 
to  publish  a  usurious  rate,  and  thus  control  dis- 
counts by  this  means.     They  could  only  exert  a 


HISTORY  OF  AMERICAN  CURRENCY.    iyy 

direct  contraction  on  their  issues  and  loans  when* 
ever  the  drain  upon  them  made  it  necessary, 
and  the  pressure  of  this  was,  of  course,  most 
severe  in  the  city  itself.  ^'f^rr^ 

OF  THE 

UNIVERSITY 

OF 

STATE  OF  AFFAIRS  IN  i8sl4^0r 

In  1853  the  fears  of  war  in  Europe  produced 
anxiety  with  regard  to  financial  affairs  both  in 
England  and  here.  The  bank  rate  was  at  5  per 
cent,  throughout  the  autumn  in  London.  Rail- 
road building  here  amounted  to  2,452  miles  in 
that  year.  Stock  speculation  was  unusually 
active  throughout  the  winter  and  spring,  and 
prices  were  high.  Undefined  fears  of  the  effects 
of  a  European  war  led  to  greater  restraint  in 
loans  during  the  summer,  and  stocks  suffered  a 
fall.  Many  of  the  earlier  speculations  in  exports 
to  California  had  proved  disastrous,  and  their 
results  now  accumulated.  The  discovery  of  a 
fraudulent  issue  of  two  millions  of  New  York  and 
New  Haven  Railroad  stock  was  followed  by  sim- 
ilar discoveries  in  regard  to  some  other  stocks, 
and  the  result  was  a  panic  on  the  exchange. 

8* 


i;8    HISTORY  OF  AMERICAN  CURRENCY. 

CIR.  DEP.  SPECIE. 

Jan.  i,  1854 $204,600,000   188,100,000   59,400,000 

"    1855 186.900,000   190,400,000   53,900,000 

"  The  prosperity  which  prevailed  almost  uni- 
versally up  to  the  middle  of  last  year  [1853]  had 
made  our  business  men  so  confident  in  their  own 
strength  that  all  classes  had  expanded  their  en- 
gagements far  beyond  the  protection  of  their 
own  resources,  and  were  exposed  to  the  storm 
which  began  to  gather  on  every  side.  The  first 
great  shock  to  credit  was  the  discovery  of  the 
Schuyler  fraud,  which  brought  to  a  stand  nearly 
all  those  works  of  internal  improvement  for 
whose  successful  completion  a  large  share  of 
public  confidence  was  so  necessary.  From  that 
moment  sacrifice  began  .  .  .  The  war  in 
Europe  created  more  or  less  money  pressure 
abroad,  and  capitalists  there  were  less  liberal  in 
their  investments  here,  at  a  time  when  their  as- 
sistance would  have  been  most  acceptable."  The 
wheat  crop  was  small  and  the  cotton  production 
lessened  by  the  pressure  of  cholera.  "  A  worse 
panic  began  in  the  interior,  and  especially  in  the 
West  and    North-west.     In   Ohio,   Indiana,   Illi- 


HISTORY  OF  AMERICAN  CURRENCY,     ijg 

nois,  Michigan,  Wisconsin,  Iowa,  and  Missouri, 
and,  to  some  extent,  in  the  Spates  on  the  south 
of  the  Ohio,  a  large  circulation  of  bank-notes, 
mostly  of  the  free  banks,  had  been  obtained 
through  expenditures  for  railroad  purposes,  and 
the  general .  expansion  of  business.  When  the 
contraction  began,  this  circulation  came  in 
rapidly,  and  found  the  banks  wholly  unprepared 
to  meet  it.  .  .  .  All  the  banks  which  held 
balances  at  the  East  drew  for  them,  and  borrowed 
to  the  extent  of  their  credit  besides,  while  be- 
tween twenty  and  thirty,  perhaps  more,  of  insti- 
tutions which  were  really  solvent  were  com- 
pelled to  suspend  payment.  A  large  number  of 
private  bankers  were  carried  down  in  the  crash, 
and  the  distress  became  general. 
During  all  this  severe  pressure  in  the  money 
market,  and  general  disturbance  of  public  confi- 
dence, it  is  a  cause  for  congratulations,  that  the 
mercantile  community  have  stood  the  trial  so  no- 
bly. .  .  .  The  reason  of  this  may  be  found 
in  the  increased  supply  of  metallic  currency  re- 
maining in  the  country.  Over  one  hundred  mil- 
lions in  gold  coin  have  been  added  to  the  circu- 


l8o    HISTORY  OF  AMERICAN  CURRENCY. 

lation  of  the  United  States  since  the  discovery 
of  gold  in  California.  Thus,  although  the  rates 
of  interest  have  been  high  for  nearly  eighteen 
months,  there  has  been  no  such  scarcity  of 
money  as  has  been  felt  in  former  periods  of 
commercial  embarrassment,  .  .  .  The 
banks  have  been  severely  tried,  but  those  in  our 
largest  cities  (with  the  exceptions  before 
noticed)  have  mostly  stood  the  shock  un- 
moved." * 

CRISIS  OF  1857. 

In  1856  railroad  building  once  more  extended 
to  3,642  miles,  nearly  all  in  the  Western  States. 
The  spring  of  1857  being  very  late,  and  the 
prospect  for  the  crops  bad,  many  prophecies  of 
trouble  were  published,  but,  as  the  season 
turned  out  well,  the  fears  were  dispelled,  and 
scarcely  any  one  seems  to  have  apprehended  the 
coming  trouble.  A  fall  in  stocks,  however,  took 
place  in  the  summer,  to  the  great  embarrass- 
ment of  the  large  number  of  persons  who  held 
call  loans  for  which  they  had  given  stock  collate 

*  Merch.  Mag.  :  December,  1854. 


HISTORY  OF  AMERICAN  CURRENCY,     t8i 

eral.  The  first  actual  shock  was  the  failure,  on 
the  24th  of  August,  of  the  Ohio  Life  and  Trust 
Co.,  which  had  borrowed  largely  on  call  in  New 
York,  and  loaned  the  funds  where  they  were  not 
immediately  available.  The  liabilities  were 
about  seven  millions.  The  credit  of  this  institu- 
tion had  been  very  high,,  and  its  failure  was  fol- 
lowed by  a  general  desire  to  test  the  foundations 
of  credit.  Such  an  attempt  could  not  do  other- 
wise than  produce  a  general  downfall. 


1855-6. 

1856-7. 

Per  ct.  specie 
to  cir. 

Per  ct.  specie 

to     cir.     and 

deposits. 

Per  ct.  specie 
to  cir. 

Per  ct.  specie 

to     cir.     and 

deposits. 

Eastern  States 

Middle  States 

Western  States 

Southern  States 

South-western  States. 

14. 

37-35 
21.5 

50-4 
27.4 

8.4 
11.79 
15-8 
28.7 
15.4 

13-4 
37-2 
18.3 
41.6 
21.7 

8.18 

n-5 
13.2 
24.2 
13.2 

Average. 

30.13 

16.OI 

26.44 

14.056 

At  this  period  no  rule  seems  to  have  governed 
issues  save  to  keep  one-third  of  the  circulation  in  1 
specie,  and  in  some    States  even   this  dwindled    I 
down  to  one  tenth  or  one-twelfth.     Such  a  rule, 


1 82     HISTORY  OF  AMERICAN  CURRENCY. 

however,  is  entirely  fallacious,  as  any  other  arbi- 
trary rule  of  reserve  must  be,  and  it  proved  in  the 
time  of  trial  that  there  was  no  strength  to  endure 
any  shock. 

The    New    York    banks    expanded    and    con- 
tracted in  1857  as  follows: 


LOANS. 

SPECIE. 

CIRCULATION. 

DEPOSITS. 

Jan.  3,  1857. 

109,100,000 

11,  ico,ooo 

8.600,000 

95,800,000 

Apr.  4,  1857. 

114,500,000 

11,500,000 

8, 800,  coo 

97,300,000 

July  3,  1857. 

115,000,000 

12,800  000 

8,900.000 

9S,  8OO,  OOO 

Aug.  8,  1857. 

122,000,000 

1 1 ,  700,  coo 

8,900,000 

94,400,000 

Aug.  29,  1857. 

Il6,5O0,0OO 

9,200,000 

8,600,000 

84,800,000 

Oct.  17,  1857. 

97,200,000 

7, 3oo,  coo 

8,000,000 

52,800,000 

Nov.  23,  1857. 

94,900,000 

24,  ;  00, 000 

6,500,000 

79,500,000 

Dec.  12,  1857. 

96,500,000 

26,000,000 

6,300,000 

75,300,000 

The  loss  of  the  steamship  ''Central  America" 
with  over  a  million  of  treasure  enhanced  the 
stringency. 

A  large  number  of  failures  of  banks  and  firms, 
especially  brokers,  produce  dealers,  and  persons 
depending  on  Western  collections,  took  place  in 
September.  Bills  on  the  seaboard  were  hardly 
obtainable  in  the  interior  at  10  and  15  per  cent, 
premium.  On  the  1 2th  and  1 3th  of  September  the 
banks    of   Philadelphia,   Washington,   Baltimore, 


HISTORY  OF  AMERICAN  CURRENCY.    j8j 

and  many  interior  towns  suspended.  Stocks  fell 
40  or  50  per  cent.,  and  20,000  persons  were 
thrown  out  of  work  in  New  York  City  within  a 
fortnight.  The  universal  demand  of  the.  banks 
was  for  relief  by  expansion,  but  the  contrary 
course  was  pursued  with  the  utmost  vigor. 
There  was  indeed  no  room  for  expansion.  The 
utmost  resources  had  been  employed  in  good 
times,  and  there  was  no  reserve  strength.  The 
hoarding  of  currency  which  takes  place  at  all 
such  times  still  further  enhanced  the  trouble. 

The  "panic"  immediately  followed,  but,  as 
was  said  often  at  the  time,  it  broke  out  first  in- 
side the  banks.  When  it  was  seen  that  no  help 
was  to  be  expected,  and  that  the  banks  of  New 
York  and  Boston  were  likely  to  suspend,  there 
began  a  run  on  the  deposits.  On  the  13th  of 
October  the  New  York  banks  (with  one  excep- 
tion) suspended.  They  were  followed  in  a  few 
days  by  the  Boston  banks,  and  by  the  others 
who  had  hitherto  held  out,  with  only  a  few 
exceptions. 

Exchange  now  fell  to  100  and  even  to  90,  and 
bills  were  not  saleable.     Exports  almost  ceased, 


1 84    HISTORY  OF  AMERICAN  CURRENCY. 

and  gold  began  to  move  this  way.  The  increase 
in  the  stock  in  bank  appears  in  the  above  table. 
The  New  York  banks  agreed  to  take  country 
bills  at  par,  interest  to  be  charged  after  Decem- 
ber ist.  The  country  issues,  thus  encouraged, 
formed  remittances,  which  were  redeemed  by 
drafts  against  the  produce  which  they  caused  to 
be  forwarded. 

The  state  of  things  was  better  in  New  Orleans 
than  elsewhere.  The  banks  there  had  been 
stronger  than  anywhere  else.  Of  nine  banks, 
only  four  suspended  at  all,  and  they  only  for  a 
few  days. 

The  Pennsylvania  legislature  authorized  the 
suspension  until  May.  In  New  York  the  Con- 
stitution forbade  the  legislature  to  authorize  sus- 
pension of  specie  payments  either  directly  or  in- 
directly. The  judges  of  the  Supreme  Court, 
however,  met  and  agreed  not  to  grant  any  in- 
junction unless  the  bank  was  insolvent  or  guilty 
of  fraud.  Thus  even  a  constitutional  provision 
proved  as  ineffectual  as  any  law  had  ever  been-- 
I  will  not  say  to  prevent  a  suspension,  for  the 
suspension    was    inevitable,    but    to    enforce    a 


HISTORY  OF  AMERICAN  CURRENCY.    ^5 

system  of  banking  which  would  not  lead  to  sus- 
pension, and  the  plan  of  securing  circulation  by 
pledge  of  stocks  proved  unavailing  to  allay  a 
panic. 

The  Secretary  of  the  Treasury  interfered 
again  in  this  case  by  purchasing  bonds.  A)  a/^  0 
/  In  the  inquiries  which  were  made  as  to  the 
causes  of  the  crisis,  the  state  of  the  currency  was 
generally  recognized  as  the  root  of  the  trouble. 
The  over-trading,  over-importation,  stock  specu- 
lation, extravagance,  etc.,  were  generally  ascribed 
to  this,  but  there  were  some  who  found  other 
causes  for  the  crisis.  One  writer,  after  enumerat- 
ing these  secondary  incidents  as  causes,  gave 
another,  as  the  immediate  occasion,  and  that  was 
— the  telegraph.  He  thought  nothing  could 
cure  the  trouble  permanently  but  a  protective 
tariff.  Others  ascribed  it  almost  entirely  to  the 
payment  of  interest  on  deposits,  and  some  States 
passed  laws  forbidding  this.,  The  payment  of 
interest  on  deposits  is  like  every  other  business 
risk, — the  man  who  undertakes  it  must  measure 
his  own  ability  to  do  it,  and  the  lender  or  depos- 
itor must  judge  whether  the  person  or  institu- 


1 86    HISTORY  OF  AMERICAN  CURRENCY. 

tion  to  whom  he  lends  can  do  what  is  under- 
taken. 

The  newspapers  were  also  filled  with  homilies 
on  extravagance  and  exhortations  to  "  confi- 
dence," but  the  matter  is,  in  a  panic,  that  the  con- 
fidence, so  long  entertained,  is  now  recognized 
as  unfounded.  It  is  the  force  of  the  truth  which 
makes  the  trouble,  and  how  can  it  avail  to  try  to 
make  men  still  delude  themselves  ?  In  general, 
however,  the  fact  was  recognized,  that  the  great 
means  of  keeping  the  business  of  the  country 
sound,  so  far  as  any  thing  can  control  haste  for 
riches,  is  to  keep  the  currency  sound,  and  that  the 
only  way  to  keep  the  currency  sound  is  to  have 
it  actively  and  actually  converted  into  coin. 
Convertibility  is  not  enough,  if  it  is  only  nominal, 
and  if  no  one  tests  its  reality  because  public 
opinion  frowns  on  such  an  act,  or  bank  displeas- 
ure follows  it. 

The  pressure  passed  away  in  the  course  of  the 
winter.  The  liquidation  was  rapid,  and  by 
spring  business  was  again  in  motion.  The  New 
York  banks  resumed  on  the  12th  of  December, 
and  others  followed  gradually  and  informally.     In 


HISTORY  OF  AMERICAN  CURRENCY.     \%j 

the  spring  money  was  very  easy,  and  United 
States  Treasury  notes  were  sold  at  an  average  of 
4*  per  cent,  interest. 

In  the  meantime  the  surplus  revenue  had  been 
applied  to  the  reduction  of  the  public  debt,  which, 
in  1853,  was  67,000,000,  and  in  1857  (July  1st), 
29,000,000.  In  March,  1857,  the  tariff  was  re- 
duced to  an  average  of  20  per  cent,  on  dutiable 
imports. 

ALTERATION  OF  THE  COINAGE. 

The  law  of  1834,  having  underrated  silver  in 
the  coinage,  had  the  effects  described  above 
(page  no).  In  March,  1853,  a  law  was  passed,* 
similar  to  the  English  law  of  18 16,  to  obviate 
the  difficulty  of  throwing  either  one  or  the  other 
metal  out  of  circulation.  On  this  plan,  silver  is 
purposely  overrated  in  the  coinage  so  that  it  is 
worth  more  as  coin  than  as  metal.  There  is, 
therefore,  a  loss  in  exporting  or  melting  it.  The 
silver  dollar  was  not  altered,  but  it  had  ^disap- 
peared  and  ceased  to  be  a  coin  of  the  country. 
The  fractional  coins  were  made  to  weigh  :  50  cts., 

*  See  p.  292. 


1 88    HISTORY  OF  AMERICAN  CURRENCY. 

192  grains  standard  (nine-tenths  fine)  ;  25  cts.,  96 
grains.  At  the  rate  of  15.625  to  1  for  silver  to 
gold,  two  half  dollars  are  worth  .9533  of  a  gold 
dollar.  This  fractional  silver  was  coined  by  the 
government  out  of  purchased  metal,  and  not  upon 
demand  of  holders  of  bullion.  These  coins  were 
therefore  made  legal  tender  only  for  sums  less 
than  five  dollars.  It  is  evident  that  this  was  no 
depreciation  of  the  coinage. 

The  reaction  from  the  crisis  of  1857  was  so 
rapid  and  complete  that  its  lesson  was  only  par- 
tially learned.  Things  went  on  until  the  war 
very  much  in  the  old  way.  The  state  of  the  cur- 
rency is  sufficiently  shown  by  the  following 
table  : 

ABOUT  CIRC.  DEPOSITS.  LOANS.  SPECIE. 

Jan.  i,  1857 214,700,000  230,309,000  684,400,000  58,300,000 

1858 155,200,000  185,900,000  583,100,000  74,400,000 

1859 193,300,000  259,500,000  657,100,000  104,500,000 

i860 .  207,100,000  253,800,000  691,900,000  83,500,000 

1861  ....  202,000,000  257,200,000  696,700,000  87,600,000 

1862  ....  183,700,000  296,300,000  646,300,000  102,100,000 
1S63  ....  238,600,000  393,600,000  648,600,000  101,200,000 

In  March,  1858,  Mr.  Balfour,  of  Boston,  classi- 
fied the  note  issues  of  the  country  as  follows : 


HISTORY  OF  AMERICAN  CURRENCY.    i8g 


Notes  for 

$1 

to  th 

e  amount  of 

7,000,000 

(< 

2 

1              a 

4,000,000 

« 

3 

1              a 

3,000,000 

a 

5 

i              tt 

15,000,000 

u 

10 

(                U 

5,000,000 

ti 

20 

(             u 

13,000,000 

it 

50 

I            (< 

12,000,000 

it 

100 

l               M 

8,000,000 

n 

500 

(              a 

35,000,000 

u 

1,000 

t             n 

30,000,000 

n 

5 

,000 

1          a 

2,000,000 

Total 

134,000,000 

n  THE    OUTBREAK  <j£  hME^  A  I 

WAR.  ''ITNIVEKSITI 

No  year  in  American  history  ha^  bee^ru  Qiore^ 

prosperous  than  was  the  year  i860.  ^Ch^j^Qtton 
crop  of  that  year  was  unprecedented,  reaching 
4,600,000  bales.  The  grain  crops,  although  not 
so  extraordinary,  were  very  good.  After  the 
election  in  November  the  attitude  of  the  South- 
ern States  created  great  anxiety  in  commercial 
circles.  Business  was  contracted,  imports  de- 
clined, and  finances  were  arranged  in  anticipation 
of  a  coming  storm.  Foreign  exchanges  fell,  and 
gold  began  to  be  imported,  prices  being  low  and 
imports  suspended. 


I  go    HISTORY  OP  AMERICAN  CURRENCY, 

Durinp*  the  winter,  the  Southern  members  of 
Congress  took  their  departure,  and,  after  the  in- 
auguration of  President  Lincoln,  increased  reven- 
ues being  required,  the  tariff  was  revised.  The 
opposition  to  protection  being  withdrawn,  this 
tariff  revision,  undertaken  for  revenue,  was  car- 
ried out  in  the  interest  of  protection,  and  in  a 
manner  hostile  to  revenue,  thus  weakening  the 
country  at  the  very  moment  when  it  needed  its 
utmost  strength.  This  result  being  at  once  ex- 
perienced, an  effort  was  made  at  the  extra  session 
of  Congress  to  secure  a  modification  of  the  pro- 
tective features,  but  without  success.  The 
country  was  once  more  embarked  on  the  p'rotect- 
ive  policy,  which  received  an  extension  in  the  fol- 
lowing years  unexampled  save  by  the  most  unen- 
lightened nations  on  earth. 

The  opinion  being  circulated  that  the  war  was 
to  be  short,  and  that  the  people  would  not  sub- 
mit to  taxation,  the  financial  measures  of  the  ses- 
sion were  confined  to  the  provision  for  50,000,- 
000  of  demand  notes,  250,000,000  of  7  A,-  Treas- 
ury notes  to  ran  three  years,  and  a  six  per  cent, 
loan  of  250,000,000  to  fund  the  Treasury  notes. 


HISTORY  OF  AMERICAN  CURRENCY.     jgT 

A  property  tax  was  apportioned  amongst  the 
States,  but  part  of  it  was  repealed  as  impractica- 
ble, part  was  paid  by  charges  for  sums  expended 
in  fitting  out  troops,-  and  it  produced  no  active 
revenue  to  the  general  government.  Its  nctt 
result  was  to  establish  the  machinery  which 
was  afterwards  used  in  collecting  internal 
revenue. 

The  people  were  in  the  meantime  contracting 
their  expenses,  closing  up  their  engagements, 
practising  economy,  and  in  general  adjusting 
their  affairs  to  war  circumstances  in  the  manner 
which  common-sense  dictated.  The  banks  were  in 
a  conservative  position,  and  the  weak  ones  were 
strengthening  themselves  to  the  utmost  of  their 
ability.  The  imports  were  small  and  the  exports 
large,  for,  although  cotton  was  no  longer  an  avail- 
able export,  the  grain  crop  was  large  and  sold 
at  good  prices.  The  exports  of  merchandise  ex- 
ceeded the  imports  by  67,000,000,  and  the  im- 
ports of  specie  exceeded  the  exports  by  16,000,- 
000.  This  movement  began  in  November,  i860,  , 
and  lasted  until  December,  1861.  Evidently  the 
natural  laws  which  bring  to  every  financial  skua* 


TQ2    HISTORY  OF  AMERICAN  CURRENCY. 

tion  its  own  cure  were  here  in  full  operation.  In 
the  fall  of  1 86 1  the  government  borrowed  ioo,- 
000,000  in  gold  of  the  banks,  in  two  instalments, 
and  50,000,000  more  in  its  own  paper. 

Such  was  the  situation  when  Congress  met 
in  December,  1861.  Never  did  any  man  have 
such  an  opportunity  to  win  immortality  as  a 
financier  as  was  now  offered  to  Mr.  Chase. 
The  situation  had  at  this  moment  few  difficulties. 
The  people  were  less  sanguine  that  the  war 
would  be  short  than  they  had  been  in  the  previ- 
ous summer.  They  had  contracted  their  ex- 
penses to  the  lowest  point,  and  production  was 
reduced  to  the  necessary  supply  for  consump- 
tion. They  held  their  disengaged  capital  ready 
to  the  demand  of  the  government,  if  it  should  act 
with  promptness  and  decision,  and  support  its 
own  credit.  Nor  was  it  the  capital  of  the  country 
alone  which  was  available.  War  taxes  must  and 
always  do  trench  upon  income.  It  was  the 
active  productive  power  of  the  nation,  which 
might  be  turned  to  war  making,  which  was  the 
great  resource.  The  nation  was  not  only  willing 
to    be    taxed,    but    itself    understood   generally 


HISTORY  OF  AMERICAN  CURRENCY. 


1 93 


that  only  when  it  was  being  taxed  could  it  give 
fall  credit  to  its  own  paper  promises.  The 
Congress,  moreover,  was  ready  to  give  to  the 
Secretary  all  he  asked.  If  he  had  been  the  min- 
ister of  the  Czar  he  could  not  have  disposed 
more  absolutely  of  the  national  resources.  All 
that  was  needed  was  a  firm,  clear,  bold  policy, 
showing  that  he  understood  himself  and  the  situa- 


te 
tion. 


The  Treasury  report  presented  no  such  policy. 
It  did  not  take  the  lead  at  all.  It  discussed 
government  paper  disparagingly,  suggested  a 
national  banking  system  tentatively.  It  only 
showed  that  the  nation  was  drifting  into  financial 
embarrassments  for  want  of  a  policy.  The  real 
financial  question  of  the  day  was  :  whether  we 
should  carry  on  the  war  on  specie  currency,  low 
prices,  and  small  imports,  or  on  paper  issues, 
high  prices,  and  heavy  imports.  The  alternative 
was  not  understood  because  no  one  distinctly 
comtemplated  the  latter  course,  but  it  was  sure 
to  be  the  result  of  drifting  under  no  policy. 

The   complications   with    England   about    the 

Trent  case  came  upon  the  reaction  of  disappoint- 
9 


194 


HISTORY  OF  AMERICAN  CURRENCY. 


ment  at  the  message  and  report,  and  in  Decem- 
ber gold  began  to  be  exported.  On  the  17th 
of  that  month  the  New  York  banks  stoutly  re- 
solved that  suspension  was  unnecessary,  but  the 
drain  upon  their  gold  went  on  as  follows : 

December    7  42,300,000 

"  14  39,400,000 

"  21  36,800,000 

"  28  29,300,000 

January         4  23,900,000 

From  this  time  it  began  to  increase  again,  and 
was  30,000,000  on  March  8. 

SUSPENSION. 

In  the  last  days  of  December,  1861,  all  the 
banks  suspended.  This  they  did  without  any 
earnest  attempts  to  avoid  it,  and  certainly  without 
any  necessity.  Instead  of  regarding  a  suspen- 
sion as  a  calamity  to  be  submitted  to  only  after 
years  of  war,  when  the  national  resources  should 
be  actually  exhausted  (as  the  suspension  of  the 
Bank  of  England  proved  that  it  is),  many  looked 
upon  it  as  the  natural  preparation  for  war. 

This  suspension  greatly  complicated   the    sit- 


HISTORY  OF  AMERICAN  CURRENCY.     195 

uation.  Gold  rose  to  a  premium  of  one  or  two 
per  cent.,  at  which  it  remained  until  April.  The 
202,000,000  of  bank  paper,  or  rather  the  150,- 
000,000  in  the  Northern  States,  proved  the 
stumbling  block  in  the  way  of  all  sound  financial 
measures.  The  influx  of  the  precious  metals 
in  the  previous  year  together  with  the  supply 
from  California,  and  the  amount  previously 
existing,  gave  200  or  250  millions  of  gold  in  the 
Northern  States  on  the  1st  of  December,  1861, 
together  with  150,000,000  of  bank  paper,  an 
amount  amply  sufficient  to  float  government 
loans,  or  to  allow  200,000,000  of  government 
notes  to  be  issued,  if  the  bank-notes  had  been 
withdrawn.  This  specie,  however,  could  not  stay 
in  the  country,  if  the  bank-notes  remained,  filling 
the  channels  of  circulation,  and  not  subject  to  re- 
demption, so  soon  as  the  government  made  any 
additions. 

The  specie  borrowed  by  the  government  from 
the  banks,  and  expended,  would  have  found  its 
way  back  to  the  banks  if  unimpeded  in  its  cir- 
culation, that  is,  if  it  had  been  the  only  currency ; 
but,  with    irredeemable    notes    afloat   and    gold 


196    HISTORY  OF  AMERICAN  CURRENCY. 

at  a  premium,  this  gold  was  withdrawn  and 
hoarded,  and  only  appeared  again  to  be  sold  at 
the  high  premium  two  or  three  years  after. 

The  government  could  not  borrow  more  gold 
of  the  banks,  having  exhausted  their  stock,  and, 
if  it  borrowed  further,  must  take  irredeemable 
notes  which  might  be  multiplied  to  any  amount. 
This  was  made  the  great  argument  for  the  Legal 
Tender  Act,  and  was  another  way  in  which  the 
bank-notes  clogged  the  movements  of  the  gov- 
ernment. 

The  economy  of  convertible  paper  issues  is 
assumed  and  repeated  by  many  persons  who 
have  never  taken  the  pains  to  analyze  that  econ- 
omy to  see  wherein  it  consists,  and  how  great  it 
is.  I  am  not  prepared  to  take  "  total  absti- 
nence "  ground  against  paper  issues,  because  I 
believe  that  they  may  be  made  useful  and  econo- 
mical, though  we  have  not  yet  learned  how  to 
do  it,  but  whenever  the  account  is  made  up  of 
the  advantage  and  cost  to  the  American  public  of 
their  bank  issues,  there  will  be  a  heavy  charge 
on  account  of  the  loss  and  mischief  they  caused 
at  the  outbreak  of  the  war,  to  say  nothing  of  the 


HISTORY  OF  AMERICAN  CURRENCY.    197 

previous    losses    from    panics    and     commercial 
crises  which  they  helped  to  bring  about. 

It  would  be  tedious  and  unnecessary  to  follow 
here  the  various  financial  manoeuvres  of  the  win- 
ter of  1 86 1  and  1862.  It  is  a  simple  record  of 
temporary  makeshifts  alternating  with  one  an- 
other, frittering  away  the  credit  of  the  government, 
disregarding  its  true  resource  in  the  patriotism 
of  the  people,  and  offering  large  profits  to  those 
who  handled  the  government  loans.  Of  the 
banks,  those  which  clung  to  the  old-fashioned 
principles  of  finance,  disapproved  of  the  course 
things  were  taking,  and  refused  to  participate, 
found  themselves  losing.  Those  which  fell  in 
with  the  new  order  of  things  made  enormous 
profits. 

THE  LEGAL  TENDER  ACT. 
\ 
The  embarrassments  of  the  government  be- 
coming greater  and  greater,  the  bill  for  an  issue 
of  legal  tender  notes  was  hastily  prepared  and 
offered  in  the  House.  Mr.  E.  G.  Spaulding,  of 
Buffalo,*  claims  to  have  been  the  author  of  this 

*  Financial  History  of  the  War. 


I98    HISTORY  OF  AMERICAN  CURRENCY, 

act,  and  no  counter-claimant  has  ever  arisen. 
The  act  was  earnestly  opposed  by  some  of  the 
oldest  and  best  members  of  both  houses,  but  it 
was  pressed  as  "  necessary,"  and  forced  through 
with  the  energy  and  decision  which,  earlier  in  the 
session,  so  much  needed  to  be  exerted  in  another 
direction.  So  far  as  I  know,  Mr.  Owen  Lovejoy 
is  the  only  man  who  is  on  record  as  having  put 
his  finger  on  the  irredeemable  bank-notes  as  the 
greatest  evil  in  the  situation.  The  bill  was 
signed  on  the  25th  February,  1862. 

This  act  was  passed,  as  the  debate  shows,  as  a 
temporary  war  measure.  On  the  part  of  its  ad- 
vocates, Mr.  Thaddeus  Stevens  at  the  head,  it 
was  urged  and  probably  believed,  that  the  legal 
tender  clause  would  prevent  depreciation  and 
give  credit  to  the  notes. 

Pelatiah  Webster  wrote  in  1791 :  "  The  fatal 
error,  that  the  credit  and  currency  of  the  conti- 
nental money  could  be  kept  up  and  supported  by 
acts  of  compulsion,  entered  so  deep  into  the 
minds  of  Congress,  and  of  all  departments  of  ad- 
ministration through  the  States,  that  no  con- 
siderations of  justice,  religion,  or  policy,  or  even 


HISTORY  OF  AMERICAN  CURRENCY.    199 

experience  of  its  utter  inefficacy,  could  eradicate 
it.  It  seemed  to  be  a  kind  of  obstinate  delirium, 
totally  deaf  to  every  argument  drawn  from  jus- 
tice and  right,  from  its  natural  tendency  and 
mischief,  from  common  sense,  and  even  common 
safety.  This  ruinous  principle  was  continued  in 
practice  for  five  successive  years,  and  appeared  in 
all  shapes  and  forms,  i.  e.  in  tender  acts,  in  limi- 
tations of  prices,  in  awful  and  threatening  decla- 
rations, in  penal  laws  with  dreadful  and  ruinous 
punishments,  and  in  every  other  way  that  could 
be  devised,  and  all  executed  with  a  relentless 
severity,  by  the  highest  authorities  then  in  being, 
viz.,  by  Congress,  by  assemblies  and  conventions 
of  the  States,  by  committees  of  inspection  (whose 
powers  in  those  days  were  nearly  sovereign), 
and  even  by  military  force  ;  and,  though  men  of 
all  descriptions  stood  trembling  before  this  mon- 
ster of  force,  without  daring  to  lift  a  hand  against 
it,  during  all  this  period,  yet  its  unrestrained 
energy  proved  ever  ineffectual  to  its  purposes,  but 
in  every  instance  increased  the  evils  it  was  de- 
signed to  remedy,  and  destroyed  the  benefits  it 
was    intended   to   promote.     At  best  its   utmost 


200    HISTORY  OF  AMERICAN  CURRENCY. 

effect  was  like  that  of  water  sprinkled  on  a 
blacksmith's  forge,  which  indeed  deadens  the 
flame  for  a  moment,  but  never  fails  to  increase 
the  heat  and  force  of  the  internal  fire.  Many 
thousand  families  of  full  and  easy  fortune  were 
ruined  by  these  fatal  measures,  and  lie  in  ruins  to 
this  day,  without  the  least  benefit  to  the  country, 
or  to  the  great  and  noble  cause  in  which  we 
were  then  engaged. 

"  I  do  not  mention  these  things  from  any  pleas- 
ure I  have  in  opening  the  wounds  of  my  country, 
or  exposing  its  errors,  but  with  a  hope  that  our 
fatal  mistakes  may  be  a  caution  and  warning  to 
future  financiers,  who  may  live  and  act  in  any 
country  which  may  happen  to  be  in  circum- 
stances similar  to  ours  at  that  time." 

Here  was  a  warning  from  our  own  history  of 
what  must  be  the  tendency  of  any  legal  tender 
law,  whether  more  or  less  stringent.  So  far  from 
sustaining,  it  could  only  injure  the  credit  of  the 
paper. 

The  precedent  of  the  English  Bank  Restric- 
tion was  frequently  and  erroneously  referred  to, 
and  inferences  were  drawn  which  were  simply 


HISTORY  OF  AMERICAN  CURRENCY.    2oi 

ignorant.  The  spirit  of  the  debate  was  that  of 
panic.  ^ The  finances  had  been  allowed  to  drift 
into  a  serious  condition,  and  then,  instead  of  ap- 
plying cool  and  calm  reason  to  find  out  and  cor- 
rect mistakes,  recourse  was  taken  to  the  last 
and  most  desperate  resources.  The  financial  in- 
terests of  a  great  nation  for  an  indefinite  future 
were  staked  upon  a  desperate  resource,  to  tide 
over  a  temporary  exigency.  When  the  lessons 
of  history  were  quoted  they  were  answered  by 
the  flag  and  the  eagle.  When  caution  was 
urged  in  view  of  possible  future  exigencies,  it 
was  answered  by  prophecies  of  military  suc- 
cess and  denunciations  of  rebels.  When  the 
need  of  deliberation  was  urged,  it  was  answerep! 
by  clamor  in  regard  to  the  necessities  of  the 
government.  When  it  was  said  that  irredeemable 
paper  had  always  wrought  ruin,  it  was  answered 
that  our  resources  were  unlimited,  and  that  these 
precedents  did  not  make  a  rule  for  us.  When  it 
was  prophesied  that  the  paper  would  depreciate, 
and  that  we  should  not  be  able  to  retrace  our 
steps,  the  prophets  of  evil  were  .  indignantly 
pointed  to  the   "  pledged   faith "  of  the   United 


202    HISTORY  OF  AMERICAN  CURRENCY. 

States,  and  asked  if  they  thought  that  would  be 
violated.  The  inference  that  the  notes  must  be 
made  legal  tender,  because  the  government 
needed  money,  was  never  analyzed,  and  its  fal- 
lacy never  shown.  The  question  whether  it  is 
necessary  to  issue  legal  tender  notes  is  a  ques- 
tion not  of  law,  but  of  political  economy,  and 
political  economy  emphatically  declares  that  it 
never  can  be  necessary.  The  proposition  in- 
volves an  absurdity.  Whatever  strength  a  na- 
tion has  is  weakened  by  issuing  legal  tender 
notes.*  One  might  as  well  say  that  it  is  neces- 
sary to  open  the  veins  of  a  weak  man  who  has  a 
heavy  physical  task  to  perform.  All  history 
shows  that  paper  money  with  a  forced  circulation 
is  not  a  temporary  resource.  It  cannot  be  taken 
up  and  laid  down  as  we  choose.  It  is  a  mischief 
easily  done  but  most  difficult  to  cure.f 

*  See  the  extracts  from  the  debate  of  1819,  especially  Lord  Grenville's 

speech,  p.  296. 

f  See  Chapter  III. 


HISTORY  OF  AMERICAN  CURRENCY. 


EFFECTS  OF  LEGAL  TENDER  ISSUES. 


203 


The  notes  were  first  issued  in  April,  1862. 
Gold  began  to  rise  and  to  be  exported.  The 
following  table  from  the  "  Merchants'  Magazine/' 
for  July,  1862,  shows  how  immediate  and  direct 
was  the  effect. 

(Five  figures  omitted.) 


April  12 
"  19 
"    26 

May  3 
"     10 

"     17 
"     24 

t"     3I 

J  une  7 

"  14 
"  23 


GOV. 

BANK 

SPECIE. 

EXPORT 

GOLD. 

EXCH.    ON 

payt's. 

DEPOSITS. 

SP,  CIE. 

PREMIUM. 

LONDON. 

4.6 

93-7 

34-5 

1-5 

If 

m£ 

12.5 

95.1 

34-6 

.6 

If 

112 

24.7 

ioi.8 

352 

I.I 

tf 

112^ 

22.7 

109.6 

35-i 

•7 

2| 

"3$ 

17. 1 

H5-5 

32.2 

i-5 

3i 

114 

9.8 

120.0 

30.2 

1.0 

3f 

114 

10.4 

122.6 

30.6 

•9 

3i 

ii5 

6.8 

125.4 

34-3 

.8 

3f 

H4f 

6.5 

125-5 

31.2 

1.6 

4i 

115 

9.8 

125.6 

i    3ii 

2.0 

M 

118 

8.4 

126.6 

31.0 

3-* 

7 

121 

High  gold  and  exchange  stimulated  exports, 
for  high  nominal  prices  were  realized,  but,  as 
home  prices  advanced,  and  the  foreign  prices  of 
export  were  governed  by  foreign  circumstances, 
these  large  returns  proved  fallacious,  and  the 
heavy  pressure  on  the  Western  agricultural  in- 
terest began,  which  led  to  an  outburst,  in  1873, 
of  loud  and  ill-directed  complaints.  Heavy 
imports    followed  upon    heavy   exports   of  mer- 


204    HISTORY  OF  AMERICAN  CURRENCY. 

chandise  and  gold,  and  the  paper  inflation  and 
fictitious  prosperity  enabled  people  to  pay  heavy 
duties,  large  gold  premium,  and  high  exchange 
for  the  imported  articles.  The  mills,  forges, 
and  factories  were  active  in  working  for  the  gov- 
ernment, while  the  men  who  ate  the  grain  and 
wore  the  clothing  were  active  in  destroying,  and 
not  in  creating  capital.  This,  to  be  .sure,  was 
war.  It  is  what  war  means,  but  it  cannot  bring 
prosperity. 

One  immediate  effect  of  the  Legal  Tender  Act 
was  to  destroy  our  credit  abroad.  Stocks  were 
sent  home  for  sale,  and,  as  Bagehot  shows,  * 
Lombard  Street  was  closed  to  a  nation  which  had 
adopted  legal  tender  paper  money.  No  sales  of 
bonds  could  be  made  in  England  until  the  wa 
closed,  and  the  amount  of  legal  tender  to  bv. 
issued  was  finally  fixed  by  facts.  The  loans  a£ 
home  were  scarcely  more  successful.  Much  was 
said  in  Congress  about  the  disgrace  of  "shin 
ning"  through  Wall  Street  to  borrow  money  for 
national  use,  and  a  foolish  pride  of  seeing  the 
bonds  quoted  at  par,  led  to  such  restrictions  on 

*  Preface  to  the  last  edition  of  the  "  English  Constitution." 


HISTORY  OF  AMERICAN  CURRENCY.    205 

the  Secretary  that  he  was  obliged  to  resort  to  the 
most  disadvantageous  transactions  with  lenders, 
and  to  continue  paper  issues  until  a  six  per  cent, 
bond  sold  at  par  indeed,  but  for  a  currency  worth 
from  60  to  70  cents  on  the  dollar.  The  notes  he 
paid  out  to  government  creditors  were  accumu- 
lated in  banks,  and  then  deposited  again  in  the 
United  States  Treasury  at  five  per  cent. 

By  August  all  specie  had  disappeared  from 
circulation,  and  postage-stamps  and  private  note- 
issues  took  its  place.  In  July  a  bill  was  passed 
for  issuing  stamps  as  fractional  currency,  but  in 
March,  1863,  another  act  was  passed  providing 
for  an  issue  of  50,000,000  in  notes  for  fractional 
parts  of  a  dollar — not  legal  tender.  For  many 
years  the  actual  issue  was  only  30,000,000,  the 
amount  of  silver  fractional  coins  in  circulation  in 
the  North,  east  of  the  Rocky  Mountains,  when 
the  war  broke  out..  In  1872  this  issue  was  forced 
up  to  between  40  and  50,000,000,  producing  a 
redundancy  and  enhancing  retail  prices. 

The  Legal  Tender  Act  provided  for  funding 
the  notes  in  six  per  cent.  5-20  bonds.  Very  few 
were   so   funded   even   with   money  at  four    pet 


2o6    HISTORY  OF  AMERICAN  CURRENCY. 

cent.,  an  instructive  fact  for  those  who  now 
hope  to  fund  the  outstanding  notes  by  simply 
allowing  it  to  be  done.  However,  this  fixed  the 
price  of  a  six-per-cent.  bond  at  par  in  paper,  and, 
as  the  Secretary  might  not  sell  below  the  market 
price,  he  could  not  negotiate  with  bankers  on 
terms  which  allowed  them  a  profit.  This  clause 
was,  therefore,  repealed. 

The  interest  on  the  bonds  was  payable  in  gold, 
duties  being  payable  in  gold,  but  the  50,000,000 
of  notes  issued  in  August,  1861,  and  10,000,000 
in  February,  1862,  were  receivable  for  all  dues. 
They  were  at  a  premium  just  less  than  gold,  for 
the  payment  of  duties,  and  very  little  gold  came 
in  until  these  notes  had  all  been  paid  in.  During 
1862,  the  government  bought  gold  to  pay  inter- 
est. It  was  not  until  1863  that  the  popular  sales 
of  bonds  afforded  a  steady  resource  of  means  of 
payment,  and  the  duties  produced  a  gold  income 
for  paying  interest.  The  advance  of  prices, 
however,  had  vastly  increased  the  expenditure 
of  the  government,  and  the  sum  total  of  the  debt 
is  increased  to  an  amount,  which  it  would  be 
idle  to  try  to  estimate,  by  the  paper  inflation. 


HISTORY  OF  AMERICAN  CURRENCY.    2OJ 

On  the  25th  of  February,  1863,  the  National 
Bank  Act  was  passed,  but  it  did  not  go  into  oper- 
ation, and  did  not  affect  the  situation,  until  two  or 
three  years  afterwards. 

On  the  23d  of  March,  1863,  Congress  passed 
the  900,000,000  Loan  Act,  allowing  the  Secretary 
to  borrow  that  sum  in  ten-forty  bonds  at  not 
more  than  six  per  cent.,  or  400,000,000  of  it  in 
Treasury  notes  at  not  over  six  per  cent.,  legal 
tender,  redeemable  in  paper  in  three  years,  or 
150,000,000  of  it  by  issuing  legal  tender  notes. 
All  the  old  notes  which  were  fundable  in  six 
per  cent,  bonds  were  called  in,  and  exchanged 
for  new  notes  not  so  fundable,  and  the  Secretary 
was  allowed  to  sell  bonds  below  the  market 
price. 

Gold  being  at  140-150,  that  is,  the  paper  dol- 
lar worth  65  or  70  cts.,  75,000,000  ten  forties 
were  taken  at  about  par  at  six  per  cent.  The 
Secretary  was  now  led  to  try  the  ten-forties  at  5 
per  cent.,  but  the  currency  was  not  sufficiently 
depreciated  to  float  them  at  or  near  par,  and  they 
were  not  taken.  He  then  used  his  alternatives, 
issuing  175  millions  one  and  two  year  Treasury 


208   HISTORY  OF  AMERICAN  CURRENCY. 

notes.  Gold  rose  to  200-220  or  above,  making 
the  paper  worth  45  or  50  cts.,  at  which  point  the 
5  per  cent,  ten-forties  floated.  The  amount  sold 
up  to  October  31st,  1865,  was  $172,770,100. 
Mr.  Spaulding  reckons  up  the  paper  issues  which 
acted  more  or  less  as  currency,  on  January  30th, 
1864,  at  $1,125,877,034.  812,000,000  bore  no 
interest.  He  disapproves  of  the  900,000,000  Loan 
Act  on  account  of  the  discretion  it  allowed  to  the 
Secretary,  and  the  inflation  to  which  it  led ;  but 
a  policy  like  that  of  the  Legal  Tender  Act  collects 
errors  as  it  advances,  and  those  who  inaugurate 
it  should  know  that  they  can  never  control  it,  nor 
throw  off  responsibility  for  its  ultimate  conse- 
quences. 

June  17th,  1864,  Congress  forbade  time  rates 
for  gold.  The  effect  was  to  enhance  the  premi- 
um, and,  on  July  2d,  the  law  was  repealed.  The 
Legislature  of  New  York  had  previously  at- 
tempted to  stop  speculation  in  gold  by  forbidding 
banks  to  loan  on  bills  of  foreiq-n  exchange,  one  of 
the  most  legitimate  operations  in  banking. 

By  an  act  of  June  30,  1864,  the  amount  of 
greenbacks  is  fixed  at  400,000,000,  and  "  such 


HISTORY  OF  AMERICAN  CURRENCY. 


209 


additional  sum,  not  exceeding  50,000,000,  as 
may  be  temporarily  required  for  the  redemption 
of  temporary  loans." 


THE  TARIFF. 


By  successive  amendments  during  the  years 
1861-1866,  the  tariff  had  been  extended  to  cover 
over  1,500  different  articles,  and  had  been  ad- 
justed and  readjusted,  by  those  who  had  the 
manipulation  of  it,  until  it  had  established  an 
iron-bound  system  of  protection.  The  duties 
collected  in  1865  were  54  per  cent,  of  the  dutia- 
ble imports.  Such  a  rate  was  hostile  to  revenue. 
It  produced  84.9  millions.* 

The  internal  taxes  had  also  been  multiplied  on 
what  Mr.  Wells  aptly  described  as  the  -Donny- 
brook  Fair  principle — wherever  you  see  an  article, 
tax  it.  In  1866  the  receipts  from  internal  taxes 
were  309.2  millions,  and  from  customs  179,000,000. 

The  patriotism  and  devotion  with  which  the 
American  people  recognized  the  necessity  of  tax- 
ation and  submitted  to  it,  are   not  surpassed  in 

*  Finance  Report,  1872. 


210    HISTORY   OF  AMERICAN  CURRENCY. 

history  ;  but  their  sacrifices  were  abused  on  the 
one  hand  by  interested  parties,  so  that  the  taxes 
were  paid  without  accomplishing  the  object,  and, 
on  the  other  hand,  their  sacrifices  were  wasted 
by  unscientific  taxation. 

The  increase  of  internal  taxation  was  made  a 
pretext  for  increase  of  duties,  but  when,  under 
Mr.  Wells'  recommendations,  internal  taxes  were 
gradually  abolished,  no  reduction  of  duties  fol- 
lowed. After  1870  some  reductions  were  made, 
but  now,  in  1874,  with  a  threatened  deficit  of 
revenue,  the  great  need  of  the  country  is  for 
some  man  to  introduce  thorough  and  comprehen- 
sive reforms  in  the  interest  of  revenue — to  per- 
form the  role  of  Sir  Robert  Peel  in  the  early 
forties. 

The  people  of  the  United  States  have  a  patri- 
otic attachment  to  the  "  greenback,"  because  they 
think  that  it  "  saved  the  country."  A  gallant 
Senator,  who  is  an  advocate  of  inflation,  re- 
cently grew  indignant  at  the  opponents  of  paper 
money  for  reflecting  on  the  "  blood-stained  green- 
back." Under  the  contagion  of  the  poetry,  one 
might  reply  that  the  fear  now  is,  lest,  if  the  Sen- 


HISTOR  Y  OF  AMERICAN  CURRENCY.    2 1 1 

ator  has  his  way,  the  greenback  may  not  yet  also 
be  stained  with  tears. 

On  the  31st  of  October,  1865,  the  total  debt 
was,  $2,808,549,437.50;  the  greenbacks  issued, 
$428,160,569;  the  National  Bank  notes,  185,- 
000,000;  State  Bank  notes,  65,000,000;  fractional 
currency,  $26,057,469.20*;  total  currency,  $704,- 
000,000. 

CONTRACTION  OR  INFLATION? 

The  war  being  ended,  the  financial  question 
took  this  form :  Shall  we  withdraw  the  paper, 
recover  specie,  reduce  prices,  lessen  imports, 
and  live  economically  until  we  have  made  up  the 
waste  and  loss  of  war,  or  shall  we  keep  the 
paper  as  money,  export  all  our  specie  which  has 
hitherto  been  held  in  anticipation  of  resumption, 
buy  foreign  goods  with  it,  and  go  on  as  if  nothing 
had  happened? 

Mr.  McCulloch,  who  was  now  Secretary  of 
the  Treasury,  proposed  to  contract  the  inflated 
paper,  and  pursue  the  former  alternative.  On 
the  1 8th  of  December,   1865,  the  House  voted, 

*  Spaulding. 


212    HISTORY  OF  AMERICAN  CURRENCY. 

144  to  6,  to  authorise  a  contraction  of  10,000,000 
in  the  next  six  months,  and  of  4,000,000  per 
month  after  that.  This  operation  went  on  until 
January,  1868,  but,  in  the  meantime,  the  National 
banks  were  going  into  operation,  being  allowed 
300,000,000  of  circulation,  150,000,000  appor- 
tioned by  population,  and  150,000,000  by  banking 
capital,  and  their  notes  more  than  compensated 
for  the  greenbacks  withdrawn.  During  the  year 
1867,  also,  war  fears  being  laid  aside,  speculation 
had  sprung  up  and  begun  to  absorb  the  redun- 
dant paper.  The  turning  point  at  which  the 
greenback  contraction  met  the  bank-note  expan- 
sion was  January,  1868.  On  January  1,  1866, 
the  banks  stood  as  follows  : 

Circulation.  Deposits.  Loans. 

213,200,000.  513,600,000.  498,800,000. 

During  the  whole  year  1866,  there  was  a 
superabundance  of  currency  at  New  York,  and 
money  ruled  at  5  to  7  per  cent,  for  the  best  60 
day  two  name  paper. 

January  1st,  1867,  the  banks  stood  : 

Circulation.  Deposits.  Loans. 

291,000,000.  555,100,000,  6o8_,4oo,ooo. 


HISTORY  OF  AMERICAN  CURRENCY.    213 

In  January  there  WcS  a  crisis  in  stocks,  and 
the  rate  was  8  to  10  for  the  same  paper  as  above. 
For  the  next  six  months  the  money  market  was 
dull  and  easy.  In  July  many  dry-goods  firms 
failed,  and  rates  were  8  to  10.  August  and  Sep- 
tember were  easy,  but  in  October  the  rate  was 
again  10. 

On  the  first  day  of  January,  1868,  the  banks 
stood  : 

Circulation.  Deposits.  Loans. 

294,300,000.  531,800,000.  616,600,000. 

At  this  juncture  outcries  were  raised  against 
contraction  by  those  who  were  engaged  in  the 
movement  of  expansion,  though,  in  regular  busi- 
ness, credit  was  still  kept  in  the  narrow  bounds 
to  which  it  had  been  reduced  during  the  war, 
and  the  people  at  large,  understanding  that  the 
Legal-Tender  Act  was  a  war  measure,  and  ex- 
pecting in  good  faith  that  resumption  must  follow 
peace,  had  made  their  arrangements  accordingly. 
Congress  forbade  any  further  contraction,  and  we 
turned  to  the  second  of  the  above  alternatives, 
which  we  have  since  consistently  followed. 


214    HISTORY  OF  AMERICAN  CURRENCY. 

PAPER  MONEY  WITH  A  FIXED  LIMIT, 

The  era  of  paper  money  on  which  we  then 
entered  has  one  peculiar  feature,  unprecedented, 
so  far  as  I  have  been  able  to  learn,  in  the  history 
of  paper  money.  Our  paper  money  is  redundant, 
but  fixed  in  amount.  The  greenbacks  stood, 
when  Mr.  McCulloch's  contraction  was  arrested, 
at  356,000,000.  The  bank-notes  were  fixed  at 
300,000,000,  but  subsequently,  July,  1870,  54,000,- 
000  more  were  authorized.  The  fractional  cur- 
rency was  fixed  at  50,000,000.  The  bank-notes 
have  never  quite  reached  350,000,000,  and  the 
fractional  has  never  reached  its  limit.  The  with- 
drawal of  the  three-per-cent.  compound  interest 
notes,  which  had  been  held  as  bank  reserves, 
operated  as  a  contraction,  but  the  allowance  to 
the  country  banks  to  keep  f  of  their  reserves  in 
the  redemption  cities  operated  as  expansion. 
Allowing  for  these  variations,  the  limit  of  legal 
currency  was  fixed,  until  the  Fall  of  1873,  at 
750,000,000.  Nearly  every  nation  which  has 
ever  used  paper  money  has  fixed  its  amount,  and 
set  limits  which  it  has   solemnly  promised  again 


HISTORY  OF  AMERICAN  CURRENCY.     215 

and  again  not  to  pass,  but  such  promises  are 
vain.  The  intention,  when  they  are  made,  is 
honest,  but  it  is  impossible  to  keep  them.  A 
man  might  as  well  jump  off  a  precipice  intending 
to  stop  half  way  down.  It  remains  to  be  seen 
whether  we  too,  when  the  redundancy  is  ab- 
sorbed by  high  prices  and  excessive  credit,  will 
break  over  the  limit,  as  every  other  nation  has 
done,  under  the  inevitable  constraint  which  it 
then  imposes, — but  the  phenomena  thus  far,  are 
those  of  a  redundant  paper  with  a  fixed  limit. 

COURSE   OF  THE  MARKET. 

To  trace  out  its  operation  would  require  a  his- 
tory of  the  money  market  for  the  last  six  years. 
The  inflation  of  credit  which  went  on  all  over  the 
country  so  soon  as  it  was  understood  that  specie 
payments  were  indefinitely  postponed,  is  only 
imperfectly  presented  in  the  following  table  show- 
ing the  state  of  the   National  Banks   at   different 

date,  ^LUriiAHV       , 

UNIVERSITY   OF 

1FORNIA. 


216    HISTORY  OF  AMERICAN  CURRENCY. 


1868 
1869 
1S70 
1871 


j  Jan.  1  . . 
\  July  1.  . . 
(  Jan.  1 . . . 
j  July  1. . . 
j  Jan.  1.  .  . 
/July  [... 


(Jan. 


July, 
Oct  1, 


1872 

I573  j  Sept.  12. 


U 


Millions 

294-3 

294.9 

294.4 

292 

292 

291 

302 

307 

333 

336 


339-o 


Millions. 

531-3 
575-8 
563.5 

574-3 
546.2 
542.1 
561.9 
602.1 
625.7 
668.9 
622.6 


Millions. 
616.6 

655-7 
644.9 
6S6.3 

688  8 

719  3 

768.3 
7894 
8/2.5 
903  8 
940.2 


Per  ct. 

Resrv. 

</-: 

0 

O 

0 

•d 

CQ 

<u 

X 

33-3 

23-9 

32-5 

24.O 

32.7 

22  9 

29-5 

21.6 

34-8 

23-4 

32.7 

22.7 

29.7 

22.6 

31-3 

22.9 

25-3 

19-3 

25.8 

20.5 

24-5 

20.7 

*  Ag.  Clearings  at 
N.  Y.  per  annum. 


28.4  thous.  millions. 

37-4 
27.8 


29-3 
32.6 

339 


In  1868  the  market  was  easy,  save  in  March 
and  April,  when  the  rate  varied  from  8  to  12,  and 
in  October,  November,  and  December,  there 
being  a  lock-up  in  November,  and  the  Western 
demand  making  itself  felt.  In  1869,  the  market 
was  stringent  throughout  the  year.  It  was  de- 
clared in  October,  to  be  "  worse  than  for  eight 
years."  Stock  speculation  was  active,  and  it  was 
remarked  that  it  was  continually  absorbing  more 
and  more    currency.     The    redundant   paper   in 

*  The  annual  aggregate  clearings  from  1853  to  1862  averaged  5,000,- 
000,000.  In  1863  they  were  14,000,000,000  and  rose  steadily.  This 
is  introduced  only  as  a  general  indication  of  the  increase  of  transactions. 


HISTORY  OF  AMERICAN  CURRENCY.    2\J 

New  York  was  absorbed,  and  the  state  of  things 
was  realized  which  was  to  come  three  years  later 
for  the  country  at  large. 

The  high  rates  of  1869  drew  funds  to  New 
York  for  loan  on  stock  security.  The  year 
1870  was  marked  by  great  ease.  Money  flowed 
into  New  York  in  abundance.  Rates  on  call 
were  from  4  to  6,  and  on  best  paper  6  to  yi 
throughout  the  year.  The  only  excitement  was 
in  July  and  August,  at  the  breaking  out  of  the 
war  in  Europe. 

In  1 87 1,  the  demand  of  funds  for  railroad 
building  became  very  marked.  The  market  was 
easy  until  September,  when  it  was  quoted  strin- 
gent, though  rates  were  not  high.  This  lasted 
during  the  autumn,  and  was  ascribed  to  the 
"  movement  of  the  crops." 

In    1872,  there  was   nothing  remarkable  until 

the  crop  movement  began  again,  when  the  rates 

advanced  sharply,   and  commercial   paper  could 

not  be  quoted.     The  Secretary  of  the  Treasury 

issued  5,000,000  of  the  44,000,000  withdrawn  by 

Mr.   McCulloch.     His  efforts  to  withdraw  these 
10 


218    HISTORY  OF  AMERICAN  CURRENCY. 

again  kept  the  market  stringent,  and  rates  exces- 
sive, throughout  the  winter. 

During  these  years  large  quantities  of  Ameri- 
can securities  were  negotiated  in  Europe.  These 
were  very  moderately  estimated — for  the  first 
three-quarters  of  1873 — at  100,000,000. 

In  1873,  the  farmers'  movement  against  the 
railroads  impaired  confidence  in  railroad  bonds  as 
an  investment.  When  the  crop  movement  began 
again  the  demand  of  the  country  banks  led  to  a 
demand  from  the  city  banks  upon  the  brokers, 
and  precipitated  a  panic  on  the  stock  exchange. 
The  failure  of  several  large  banking  houses 
engraved  in  the  sale  of  railroad  bonds  increased 
the  excitement.  The  closing  of  the  stock  ex- 
change, and  suspension  of  the  city  banks,  ob- 
liged the  country  banks  to  contract  their  loans, 
and  brought  the  industry  of  the  country  to  a  stand- 
still. There  was  little  or  no  "  panic"  outside  of 
New  York,  but  it  is  evident  that  a  crisis  in  the 
operation  of  the  paper  money  had  been  reached, 
and  that  crisis  involved  a  reduction  of  prices  and 
business.  As  the  stock  exchange  was  the  place 
at  which  the  redundent  currency  was  employed, 


HISTORY  OF  AMERICAN  CURRENCY.    2\g 

the  crisis  was  first  developed  there,  by  the  de- 
mand for  the  return  of  the  surplus.  The  shock, 
however,  was  transferred  to  the  regular  indus- 
tries  of  the  country.  The  expansion  by  the  issue 
of  a  part  of  the  44,000,000  gradually  restored  the 
prices  of  stocks,  but  production  was  restrained, 
and  the  effect  which  lasts  yet,  and  promises  to 
last  longest,  is  the  reduction  of  wages. 

During  the  crisis  greenbacks  were  hoarded, 
which  was  thought  to  prove  "how  good  they 
were."  If  the  currency  consisted  of  clam-shells, 
and  a  crisis  should  come,  in  which  it  was  to  be 
feared  that  clam-shells  might  be  scarce,  clam-shells 
would  be  hoarded ;  much  more  if  there  was  fear 
that  the  next  currency  might  be  pebbles. 

Studying  these  facts  in  the  light  of  the  previ- 
ous history,  we  perceive  that  the  annual  pressure 
in  the  autumn,  increasing  in  force  from  year  to 
year,  was  a  premonition  of  the  effect  which  must 
be  apprehended  whenever  the  expansion  of  credit 
and  prices  should  have  absorbed  the  entire  redun- 
dancy of  the  currency.  We  have  seen  in  the 
history  of  the  Massachusests  colony  that  each 
new  issue  was  followed  in  a  few  years   by  a  new 


220    HISTORY  OF  AMERICAN  CURRENCY. 

crisis,  and  an  outcry  about  hard  times  and  scarce 
money.  The  law  which  governs  this  is  apparent. 
The  rise  of  prices  and  multiplication  of  credit 
operations  will  go  on  to  absorb  any  amount  of 
currency  whatever.  If  then,  the  amount  be  fixed, 
the  expansion  must  come  up  to  and  press  against 
this  fixed  barrier.  This  pressure  will  become  ap- 
parent first  at  that  season  of  the  year  at  which  the 
normal  requirement  is  greatest. .  At  that  time 
there  will  be  great  distress  occasioned  by  the 
need  of  withdrawing  currency  from  the  use  in 
which  it  is  engaged.  As  it  cannot  be  imported, 
and  the  law  forbids  its  increase,  there  is  no  relief. 
It  must  be  withdrawn,  and  the  consequences 
must  be  endured.  Then  it  is  said  that  the  cur- 
rency is  not  elastic,  and  schemes  are  invented  for 
making  it  so  ;  but  no  device  whatever  can  make  it 
elastic.  An  elastic  body  is  one  which  will  both 
expand  and  contract,  but  a  paper  currency  never 
contracts  itself.  Any  device  which  has  elasticity 
for  its  object  will  have  expansion  for  its  effect. 

In  its  more  general  effects,  the  paper  currency 
with  a  fixed  limit  produces  a  steady  advance  in 
the  rate  of  interest,  and  also  a  reduction  of  prices. 


HISTORY  OF  AMERICAN  CURRENCY.    22l 

These  effects  are  both  traceable  in  the  history  of 
the  last  five  years.  The  whole  story  which  pre- 
cedes goes  to  show  that  the  value  of  a  paper  cur- 
rency depends  on  its  amount.  At  the  time  of 
issue,  or  during  a  war  in  which  the  issuer  is  en- 
gaged, it  depends  in  some  degree  on  his  credit ; 
but  when  it  settles  down  in  peace  as  the  normal 
medium  of  exchange,  its  value  comes  to  depend 
almost  purely  on  its  amount.  This  amount,  of 
course,  is  relative  to  the  requirements  of  the 
country  for  the  purpose  of  performing  its  ex- 
changes. What  the  requirement  is,  however, 
no  man  can  tell.  There  is  no  rule  for  finding  it. 
It  does  not  depend  on  population,  or  wealth,  or 
the  amount  of  the  exchanges.  It  bears  no  fixed 
relation  to  any  known  or  ascertainable  quantity. 
An  agricultural  country  wants  more,  for  the  same 
population  and  wealth,  than  a  manufacturing 
country.  A  sparsely  populated  country  wants 
more,  other  things  being  equal,  than  a  densely 
populated  one.  A  country  in  which  the  means 
of  communication  are  poor  wants  more,  other 
things  being  equal,  than  a  country  with  good 
means  of  communication.     It  is  idle  to  attempt  to 


222    HISTORY  OF  AMERICAN  CURRENCY. 

compute  it  at  so  much  per  head,  or  so  much  per 
thousand  of  wealth.  Currency  is  economized 
also  by  banking  arrangements  and  clearing- 
house processes ;  the  requirement  is  reduced  by 
railroad  extension,  and  all  facilities  of  communi- 
cation. 

How  far  these  conflicting  influences  have  af- 
fected the  actual  requirement  of  the  United 
States  for  circulating  medium  on  a  specie  basis 
no  one  can  even  guess.  It  is  properly  an  empir- 
ical question.  We  can  only  try.  If  we  had  a 
currency  of  specie  value,  we  should  get  just  as 
much  as  we  need,  and  then  we  should  know  how 
much  that  is,  but  then,  too,  we  should  no  longer 
care.  Statisticians  would  be  interested  in  it,  but 
the  finance  and  business  of  the  country  would 
not  hang  upon  it. 

If,  then,  we  assume  that,  on  the  whole,  this 
country  does  require  more  than  it  had  in  1861, 
this  increase  of  the  normal  requirement  goes  on 
inside  of  and  under  the  paper  expansion.  It 
produces  a  pressure  on  the  inflated  speculative 
prices  from  within,  at  the  same  time  that  they  are 
restrained   without    by   the    fixed   limit    of    the 


HISTORY  OF  AMERICAN  CURRENCY.    223 

paper.  The  effect  must  be  a  reduction  of  prices  ; 
and  such  a  reduction  having  occurred  within  the 
last  five  years  is  the  best  proof  that  the  currency 
requirement  is  greater  than  it  was.* 

In  view  of  all  this,  the  notion  of  "  growing  up  " 
to  the  fixed  volume  of  the  currency  receives  its 
just  appreciation.  The  London  "  Economist  "  un- 
fortunately seemed  to  lend  some  countenance  to 
this  notion  during  the  month  of  October,  1873, 
and  it  was  taken  up  on  this  side  of  the  water  by 
some  who  enjoyed  considerable  influence  as  con- 
servative authorities. 

If  we  suppose  the  requirement  of  currency  to 
increase  from  the  growth  of  wealth  and  popula- 
tion faster  than  it  decreases  from  improved  com- 
munication and  banking  facilities,  then  a  certain 
growing  may  be  admitted,  but,  as  it  goes  on,  it 
exerts  a  slow,  gradual,  and  pitiless  contraction 
on  prices,  broken  only,  in  Spring  and  Fall,  by  a 
succession  of  commercial  crises.  If  then,  there 
was  backbone  enough  in  the  nation  to  endure 
this  without  having  recourse  to  expansion,  the 
growth  might  go  on  for  ten  or  twenty  years,  by 

*  See  the  Diagram  at  the  end  of  this  Chapter. 


224    HISTORY  OF  AMERICAN  CURRENCY. 

which  time  perhaps  750,000,000  of  currency 
might  be  the  specie  requirement.  No  historical 
precedents  exist  to  guide  us  in  judging  whether 
this  process  would  indeed  go  on  under  such  cir- 
cumstances. As  a  matter  of  speculation,  I  am 
inclined  to  believe  that  the  actual  course  of 
things  would  be  that  after  every  crisis  wages 
would  fall,  industry  would  be  checked,  and  the 
country  would  be  slowly  and  gradually  arrested 
in  its  entire  industrial  life.  The  nearest  analogies 
are  in  the  history  of  Massachusetts,*  and  in  the 
history  of  England  from  181 2  to  i8io.t  Evi- 
dently, before  any  such  state  of  things  came 
about  we  should  break  out  of  the  restraints  in 
some  way,  but  then  there  would  be  an  end  of  the 
growing  up.  According  to  present  appearance, 
the  first  shock  is  to  push  us  into  inflation,  and  so 
the  hypothesis  falls  to  the  ground. 

However,  to  pursue  the  supposition,  granting 
everything,  when  we  grow  up  to  750,000,000,  we 
cannot  resume.  At  that  point  there  may  be  no 
premium  on  gold,  and  prices  may  be  at  specie 
level,  but  there  would  still  be  no  specie  in  the 

*  See  p.  23.  f  See  p.  280. 


HISTORY  OF  AMERICAN  CURRENCY.     225 

country.  To  carry  on  specie  payments  would  re- 
quire at  least  250,000,000  of  gold.  We  must 
either  buy  this,  and  cancel  an  equal  amount  of 
paper  to  make  room  for  it,  or  wait  to  grow  up 
250,000,000  more. 

No  notion  which  has  been  propounded  in  regard 
to  our  situation  is  more  plausible,  or  involves 
more  practical  impossibilities  than  this  of  resump- 
tion by  "  growing  up." 


If,  now,  anyone  is  disposed  to  believe  that  there 
are  any  circumstances  in  this  country,  which  are 
so  different  from  those  of  other  countries  that  in- 
ferences from  the  history  of  the  latter  are  of  no 
value  for  the  former,  here  13  the  history  of  the 
currency  of  this  country,  briefly  and  cursorily  pre- 
sented, but  sufficiently  to  show  how,  from  the  very 
outset,  our  industrial  development  has  been  crip- 
pled by  bad  arrangements  in  this  respect.  Eng- 
lish writers  have  lately  given  up  the  discussion  of 
currency  questions,  and  have  taken  the  tone  of 
passing  by  people  who  bother  their  heads  about 

this  subject  as  "  possessed."     The  same  tone  has 
10* 


225     HISTORY  OF  AMERICAN  CURRENCY. 

been  borrowed  here  by  a  certain  school  which  im- 
ports its  tone  even  more  than  its  ideas.  No  one 
knows  what  a  sick  and  weary,  subject  paper  money 
is  unless  he  has  made  it  a  specialty.  I  have 
stated,  below,*  in  its  more  proper  connection,  the 
distinction  which  is  here  to  be  observed ;  when 
the  currency  is  sound  it  takes  care  of  itself,  and 
other  considerations  of  far  higher  scientific  char- 
acter come  in  to  require  attention  :  when  the  cur- 
rency is  redundant,  irredeemable  paper,  it  floats 
everything,  and  becomes  a  prime  consideration. 
The  English  are  fortunate  in  having  experience 
only  of  a  sound  currency,  and  being  able  to  make 
light  of  evils  they  do  not  know,  although  they 
must  yet  again  take  up  the  subject,  for,  that  the 
Bank  Act  of  1844  is  not  a  scientific  settlement  of 
the  currency  question,  is  proved  by  the  fact  that 
it  could  not  be  imitated  by  any  other  nation. 

For  us,  the  currency  question  is  of  the  first  im- 
portance, and  we  cannot  solve  it,  nor  escape  it,  by 
ignoring  it.  We  have  got  to  face  it  and  work 
through  it,  and  the  best  way  to  begin  is,  not  by 
wrangling  about  speculative  opinions  as  to  untried 

*  Page  253. 


HISTORY  OF  AMERICAN  CURRENCY.    22j 

schemes,  but  to  go  back  to  history,  and  try  to  get 
hold  of  some  firmly  established  principles,  from 
which  we  can  proceed  with  some  confidence  and 
a  certain  unanimity. 

We  often  boast  of  the  resources  of  our  coun- 
try, but  we  did  not  make  the  country.  What 
ground  is  there  for  boasting  here  ?  The  question 
for  us  is :  What  have  we  made  of  it  ?  No  one 
can  justly  appreciate  the  natural  resources  of  this 
country  until,  by  studying  the  deleterious  effects 
of  bad  currency  and  bad  taxation,  he  has  formed 
some  conception  of  how  much,  since  the  first 
settlers  came  here,  has  been  wasted  and  lost. 


EXPLANATION  OF  THE  DIAGRAM. 


The  heavy  line  being  taken  as  zero  point,  or  equality  of  exports  and 
imports,  the  ;  ■  ■  '  '  '  line  shows  the  excess  of  exports  or  imports  of  mer- 
chandise, by  its  variations  above  or  below  that  line,  exports  being  reckoned 

downwards,  and  imports  upwards.     The  line marks  the  excess  of 

imports  or  exports  of  specie  in  the  same  manner.     The  dotted  line 

denotes  the  amount  of  bank  or  other  paper  per  capita.  The  light  dotted 
line  between  the  year  1848  and  the  end  shows  the  production  of  gold  in 
California. 

The  line  of  prices  at  the  top  of  the  diagram  is  made  by  adding  the  lower 
annual  averages  given  in  the  Finance  Report  of  1863  down  to  that  year. 
From  1864-1873  the  line  is  formed  by  adding  the  January  quotations  from 
the  table  given  in  the  Finance  Report  for  1873.  Over  eighty  articles  are  in- 
cluded in  each,  but  they  are  not  the  same  articles.  Therefore  the  scale  is 
rewritten  to  bring  the  starting  point  in  1864  even  with  the  ending  point 
in  1863,  and  the  two  parts  should  only  be  compared  for  relative  fluctua- 
tions, la  the  last-mentioned  table  a  hundred-weight  of  iron  and  of  hemp 
was  taken,  instead  of  a  ton  of  each,  as  given,  and  railroad  bars  were  struck 
out  because  not  given  in  1864.  Evidently  the  relation  between  the  prices 
of  1863  and  1864  does  not  appear  at  all. 


yBiu§- 


OF  THE 


UNIVERSITY 


OF 

TORN\A 


~     OF  THE 

UNIVERSITY 

OF 


CHAPTER   II. 

THE    ENGLISH    BANK    RESTRICTION. 

T  N  the  year  1795,  the  currency  of  the  British 
■*■  Islands  consisted  of  the  notes  of  the  Bank  of 
England,  the  English  country  banks,  the  Scotch 
banks,  the  Bank  of  Ireland,  and  the  Irish  coun- 
try banks,  and  of  coin.-  By  the  monopoly  clause 
of  the  charter  of  the  Bank  of  England,  no  bank- 
ing firm  consisting  of  more  than  six  partners 
could  issue  demand  notes  in  England.  Strong 
joint  stock  banks  were  therefore  illegal,  but 
tradesmen  of  every  grade  set  up  as  "  bankers," 
and  issued  notes.  These  were  the  "  country 
banks."  They  were  not  chartered  banks,  but 
private  bankers  who  issued  notes.  The  Scotch 
system  was  a  perfectly  free  one.  There  were 
three  great  chartered  banks.  The  others  were 
joint  stock  companies  and  free  partnerships, 
and  they  conducted  their  business  solely  on 
business    responsibilities.     After   some    unlucky 


230  THE  ENGLISH  BANK 

experiments  in  fancy  banking,  during  the  last 
century,  they  settled  down  to  solid,  conserva- 
tive methods  of  operation.  They  meet  with 
encomiums  on  every  hand,  and  they  deserve 
them,  but  the  reason  why  they  deserve  them  is 
lost  sight  of  by  those  who  fix  their  attention  on 
the  system.  The  system  is  the  best  conceivable ; 
but  it  involves  one  indispensable  condition  of 
success.  It  requires  vigilance,  sagacity,  science, 
and  moderation  on  the  part  of  the  bankers.  The 
freer  any  system  is,  the  more  it  requires  these 
characteristics.  The  Scotch  banks  have  suc- 
ceeded because  their  managers  have  possessed 
these  qualities.  The  same  system,  on  a  "  paper 
basis/'  or  managed  by  unreasoning  and  ignorant 
avarice,  is  a  short  road  to  ruin.  The  Bank  of 
Ireland  and  the  Irish  country  banks  were  very 
similar  in  their  organization  and  relations  to  the 
English  banks. 

The  circulation  of  the  Bank  of  England,  in 
February,  1795,  was  ^14,017,510;  its  specie, 
;£6, 1 27,720.  The  circulation  of  the  English 
country  banks  at  this  time  is  not  known,  no  sta- 
tistics having  been  collected.     It  was  estimated 


RESTRICTION.  2nX 

in  the  parliamentary  debate  of  1811  to  have  been 
from  four  to  six  millions.  The  amount  of  specie 
in  circulation  in  1795  was  estimated  in  the  same 
debates  at  from  twenty-five  to  forty  millions. 
The  Lords'  Committee,  in  18 19,  gave  this  estimate 
for  the  circulation  before  the  Restriction : 

Coin ^25,000,000 

Bank  of  England  notes 10,500,000 

Country  notes  and  Scotch  notes. ..       7,000,000 


Total  for  England  and  Scotland. .   ^42,500,000 

Lord  Liverpool  estimated  the  coin,  in  1797,  at 

thirty  millions ;  Mr.  Rose,  at  forty  millions ;  Tooke, 

■  »#• 
after   reviewing  the  evidence,  thinks    it  w'as   at 

most  twenty-two  and  a  half  millions. 

\ 

CAUSE  OF  THE  RESTRICTION. 

In  1796,  the  great  powers  being  allied  against 
France,  and  England  assisting  chiefly  by  sub- 
sidies, Pitt  began  to  draw  upon  the  Bank  for  the 
necessary  supplies.  Originally  the  Bank  was 
forbidden  to  lend  to  government,  except  by  per- 
mission of  Parliament,  but  Pitt  took  advantage 
of  an  act  of  indemnity  which  was  asked  for  in 


232  THE  ENGLISH  BANK 

1793  to  cover  previous  cases  in  which  the  Bank 
had  done  this,  to  make  the  act  so  read  as  to 
repeal  the  prohibition  entirely.  His  drafts  be- 
coming more  and  more  exhaustive  to  the  specie 
of  the  Bank,  it  proceeded  to  contract  its  notes. 
To  the  alarm  thus  occasioned,  came,  in  addition, 
a  rumor  of  intended  invasion.  A  run  on  the  / 
country  banks  followed,  which  precipitated  a 
demand  on  the  Bank  of  England.  In  February, 
j  797,  the  specie  reserve  was  but  little  over  one 
million.  The  Bank  was  meanwhile  contracting 
its  circulation  with  all  its  energy,  and  had  reduced 
it  in  February,  1797,  to  nine  millions.  The  di- 
rectors declared  to  the  Bullion  Committee,  in 
1 8 10,  that  they  thought  this  had  been  a  grave 
error  and  had  greatly  enhanced  the  crisis.  The 
necessities  of  the  government,  in  the  meantime, 
were  greater  than  ever. 

Under  these  circumstances  an  Order  in  Council 
was  issued  forbidding  the  Bank  to  pay  specie 
until  the  will  of  Parliament  could  be  known. 
This  order  was  issued  on  the  27th  of  February, 
and  was  extended  to  the  Bank  of  Ireland  on  the 
2d  of  March,  1797.     Tooke  ("Prices,"   I.  204), 


RESTRICTION.  233 

says  that  the  suspension  might  have  been  avoided 
by  one  or  two  days'  more  perseverance,  and  that 
the  run  on  the  Bank  of  Ireland  was  over  before 
the  order  to  suspend  was  received.  The  di- 
rectors of  the  Bank  of  Ireland  did  not  want  to 
suspend.  On  the  3d  of  May,  Parliament  passed 
an  act  suspending  payments  in  England  and 
Scotland  until  the  24th  of  June.  Notes  under 
£5  were  at  the  same  time  allowed  to  be  issued. 
From  the  manner  in  which  this  suspension  came 
about,  by  an  injunction  of  the  government,  it  is 
known  as  the  Bank  Restriction. 

ACTS  CONTINUING  THE  RESTRICTION 

On  the  22d  of  June,  1797,  the  Restriction  was 
continued  until  one  month  after  the  next  meeting 
of  Parliament.  On  the  30th  of  November,  1797, 
it  was  continued  until  six  months  after  the  war 
should  close.  On  the  3d  of  Jan.,  1799,  the 
Bank,  having  over  seven  millions  of  bullion, 
declared  itself  ready  to  pay  sums  under  £$  in 
coin,  and  to  redeem  its  notes  dated  before  Janu- 
ary 1st,  1798.  Its  notes  had  increased  from 
eleven  to  sixteen  millions.     April  30th,  1802,  the 


234  THE  ENGLISH  BANK 

Peace  of  Amiens  having  been  concluded,  the 
Restriction  was  extended  until  March  ist,  1803, 
although  the  Bank  was  ready  to  resume.  Feb- 
ruary 28th,  1803,  it  was  extended  until  six  weeks 
after  the  next  meeting  of  Parliament.  On  the 
13th  of  December,  1803,  war  having  been  de- 
clared, the  Bank  Restriction  was  extended  until 
six  months  after  the  ratification  of  a  definitive 
treaty  of  peace.  On  the  18th  of  July,  18 14,  Na- 
poleon having  abdicated,  and  peace  being  antici- 
pated, the  Restriction  was  extended  until  March 
25th,  1815.  March  2d,  1815,  it  was  continued  un- 
til July  5th,  18 1 6.  March  21st,  18 16,  it  was  con- 
tinued until  July  5th,  18 18,  in  order,  as  the 
preamble  to  the  act  stated,  to  give  the  Bank 
time  to  prepare  for  resumption.  May  28th, 
18 1 8,  this  preamble  was  repeated  before  another 
act  which  extended  the  Restriction  until  July 
5th,  1 8 19.  The  Bank  took  no  measures  of  pre- 
paration for  resumption  until  after  the  act  of  18 19, 
to  be  mentioned  below. 


RESTRICTION.  2^ 


BANK-NOTES   NOT  LEGAL    TENDER. 

The   bank-notes  were  never    made  legal  ten- 
der.     The   question   whether   they    were    to    be 
such    was  put   to  Mr.   Pitt   in  the    House  when 
the    Restriction    was    ratified.      He    replied    tha* 
they  were  to  be  so  from  the  Bank  to  the  public 
When  pressed  on  this   point,   especially  by  Mi 
Nicholls,  who  asked,  "  whether  it  was  his  inten 
tion    that   the   notes    of  the    Bank   of  England 
should  be  a  legal  tender  from  the  Bank  to  the 
public  creditor,"  and  declared  that,  if  so,  it  was 
an  act  of  insolvency,  the  minister  evaded  a  reply. 

In  1 80 1,  Mr.  Grigby  demanded  of  Oakes  & 
Co.,  country  bankers,  gold  for  a  five-guinea  note 
issued  by  them.  They  offered  a  ^5  Bank  of 
England  note  and  five  shillings.  He  refused  the 
note,  and  demanded  gold,  and  as  he  could  not 
get  it,  he  sued.  He  gained  the  suit  at  the  as- 
sizes, and  the  question  of  law  being  reserved  for 
the  four  judges  of  Common  Pleas,  they  all 
agreed  that  the  plaintiff  was  in  his  rights,  and 
that   notes  were  not  legal  tender  between  man 


and 


man. 


236  THE  ENGLISH  BANK 

In  1 8 10,  a  Jew  named  De  Yonge,  and  a  stage- 
driver,  James  King,  were  prosecuted  for  selling 
and  buying  guineas  at  a  premium  in  paper.  The 
cases  were  brought  under  an  act  of  Edward  VI. 
against  trading  in  gold  or  silver  at  other  than 
rates  fixed  by  law.  The  men  were  convicted,  the 
penalty  being  a  year's  imprisonment  and  fine,  but 
they  were  admitted  to  bail,  and  sentence  reserved. 
After  long  delay,  the  twelve  judges  in  the  Ex- 
chequer Chamber  decided  that  their  cases  did  not 
come  under  the  statute  cited. 

In  181 1,  Lord  King  demanded  his  rents  in 
specie  or  paper  equivalent.  No  one  denied  his 
right  to  make  this  demand,  but  "  he  was  vehement- 
ly abused  for  incivism."  In  the  same  year,  and 
with  reference  to  this  act  of  Lord  King,  Lord  Stan- 
hope introduced  an  act,  which  was  passed,  making 
it  a  misdemeanor  to  buy  or  sell  guineas  at  more 
.  than  their  denominational  equivalent  in  paper.  If 
a  debtor  offered  notes  he  was  to  be  free  from  dis- 
traint, but  the  creditor  retained  all  other  rem- 
edies. How  near  this  .came  to  a  legal-tender  law 
it  would  be  hard  to  define.  The  courts  never 
passed*  upon  it.     By  the  force  of  public  opinion, 


RESTRICTION.  237 

and  a  general  disposition  to  make  the  best  of  cir- 
cumstances, the  notes  were  used  universally. 

EFFECTS  OF  THE  RESTRICTION  IN  ITS  FIRST 
STAGE. 

The  harvest  of  1800  was  almost  a  failure.  In 
the  summer  of  that  year  the  exchanges  became 
unfavorable,  and  gold,  which  might  be  legally  ex- 
ported (z.  e.,  thaj>*  obtained  by  melting  foreign 
coin),  rose  to  a  premium.  The  mint  law  provided 
that  bullion  should  be  coined  for  any  one  who 
presented  it.  One  ounce  of  gold  was  coined  into 
£$  X7S-  ioid.  of  the  coinage,  widiout  charge  to 
the  individual  who  offered  it.  He  therefore  re- 
ceived again  just  what  he  gave,  only  in  a  manu- 
factured form.  The  only  loss  or  expense  to  him 
consisted  in  the  interest  lost  while  he  was  wait- 
ing. The  market  cash  price  for  gold  was,  on 
account  of  this  loss,  £$  17s.  6d.  per  ounce.  At 
the  time  mentioned,  June,  1800,  exportable  gold 
rose  to  £4  5s.  per  ounce  in  notes,  and  in  January, 
1 80 1,  it  was  at  £4.  6s. 

The  premium  on  gold  which  might  be  "  sworn 
off"  for  exportation  ranged  generally  during  this 


233  THE  ENGLISH  BANK 

period  three  or  four  shillings  per  ounce  higher 
than  non-exportable  gold.  Tables  showing  the 
gold  premium  differ,  some  of  them  quoting  do- 
mestic and  some  of  them  exportable  gold. 

When  the  question  of  the  Restriction  came  up 
at  the  Peace,  in  1802,  it  was  argued  that  resump- 
tion was  impossible  because  the  exchanges  were 
adverse.  Lord  King  and  Mr.  Fox  argued  that 
to  resume  was  the  way  to  make  them  favorable. 
Their  doctrine  was  that  the  redundancy  of  the 
paper  was  the  cause  of  the  premium  on  gold  and 
the  adverse  exchange,  but  they  found  no  hearers. 
The  bank-notes  in  February,  1802,  were  fifteen 
millions,  the  specie  in  bank  seven  millions. 

In  1804,  the  exchanges  with  Dublin  became  ad- 
verse to  that  place,  and  a  parliamentary  committee 
was  appointed  to  investigate  thie,  cause. 

They  ascribed  the  outflow  of  gold  from  Ire- 
land to  England  to  the  redundancy  and  deprecia- 
tion of  the  Irish  paper.  The  doctrines  they  laid 
down  were  the  same  which  were .  afterwards  em- 
bodied in  the  Bullion  Report,  but  this  Irish  report 
never  attracted  much  attention. 


s 


RESTRICTION.  239 


LIBRAE 
239 

UNIVERSITY 


COMMERCIAL  AFFAI^K)lAYQ\\\X 

In  1806,  Napoleon  declared,  by  his  Berlin  de- 
cree, the  coast  of  England  under  blockade,  and 
forbade  all  trade  with  her.  England  retaliated 
by  the  Orders  in  Council  blockading  all  ports  of 
France  and  her  allies.  The  Americans,  who,  as 
the  chief  neutral  carriers,  were  the  greatest  suf- 
ferers, retaliated  in  the  following  year  by  the  em- 
bargo, forbidding  their  ships  to  trade  with  either 
belligerent. 

In  1806,  the  French  invaded  Spain.  In  1807, 
Russia  entered  into  an  alliance  with  France.  In 
the  same  year  the  English  made  an  attack  on 
Buenos    Ayres  and  effected    a   lodgment   there. 

These  political  and  military  events  had  impor- 
tant effects  on  trade. 

As  the  Baltic  and  Spain  were  closed,  active 
speculations  in  timber  and  wool,  of  which  the 
supplies  were  thus  cut  off,  sprang  up.  The  new 
opening  in  South  America  was  also  eagerly  seized 
upon  for  speculative  trade.  At  the  same  time 
great  public  works  (bridges  over  the  Thames, 
etc.,)  were  in  progress,  and  a  joint  stock  company 


240  THE  ENGLISH  BANK 

mania  broke  out.  The  years  1808,  1809,  and 
1 8 10  were  marked  by  the  progress  of  these  spec- 
ulative movements. 

The  Bank  in  the  meantime  was  extending  its 
issues.  Following  the  February  quotations  still, 
we  find  that  the  note  circulation  in  1806  was  17 
millions;  in  1807,  16.9  millions  ;  in  1808,  18. 1  mil- 
lions; in  1809,  18.5  millions;  in  1810,  21  millions. 

This  increase,  however,  is,  in  itself,  a  matter  of 
very  small  moment.  It  is  upon  other  incidental 
political  and  financial  circumstances,  which  acted 
and  reacted  upon  one  another  in  the  most  com- 
plicated manner,  and  in  regard  to  which  our  in- 
formation is  very  meagre  and  unsatisfactory,  that 
the  results  to  be  noticed  depended.  No  one  has 
ever  made  a  thorough  and  comprehensive  an- 
alysis of  all  the  forces  which  were  here  in  action, 
and  divergent  opinions  have  naturally  arisen 
where  men  looked  at  the  facts  only  in  a  certain 
point  of  view,  or  took  account  of  only  a  certain 
limited  range  of  facts.  The  present  object  is 
only  to  trace  the  broadest  features  of  the  situa^- 
tion,  and  deduce  incontroverted  inferences. 

The  country  bank  circulation  is  of  4;he  first  im- 


RESTRICTION.  24 1 

portance  amongst  the  factors  which  we  have  here 
to  take  into  account,  but  unfortunately  it  is  impos- 
sible to  ascertain  what  it  was.  Its  expansion, 
however,  is  certain,  from  the  fact  that  the  number 
of  these  banks,  which  had  been  270  in  1797,  was 
600  in  1808,  and  721  in  18 10.  Their  circulation 
was  estimated  at  25  or  30  millions.  That  these 
issues  were  feeding  the  speculation  is  evident. 
It  appears  also  that  some  very  small  notes  were 
in  circulation.  Cobbett  gives\a  representation  of 
a  seven-shilling  note  issued  at  Tunbridge  Wells. 
(Vol.  xviii.   172.) 

The  premium  on  gold  was  also  steadily  advanc- 
ing during  these  years.  In  18 10,  McCulloch  puts 
the  price  of  bullion  at  £4.  10s.  peroz.,  or  15  per 
cent,  depreciation  of  the  notes.  The  Bullion 
Committee  put  the  depreciation  at'  1 5J  per  cent. 
It  makes  a  difference,  as  stated  above,  whether 
exportable  or  non-exportable  gold  is  quoted. 

THE  BULLION  REPORT. 

The  state  of  things  above  described  attracted 

public  attention,  and  in  January,  1810,  Mr.  Horner. 

moved  for  a  committee  "to  inquire  into  the  high 
11 


I 


242  THE  ENGLISH  BANK 

price  of  gold  bullion  and  to  take  into  considera- 
tion the  state  of  the  circulating-  medium,  and  of 
the  exchanges  between  Great  Britain  and  foreign 
parts."  The  report  of  this  committee  was  pub- 
lished in  August,  1 8 10,  but  did  not  come  up  for 
discussion  in  the  House  until  May,  181 1. 

THE  QUESTIONS  AT  ISSUE. 

As  soon  as  the  witnesses  began  to  be  examined, 
it  appeared  that  there  was  a  widespread  belief 
that  it  was  not  the  paper  which  had  depreciated, 
but  the  gold  which  had  advanced — a  notion  which 
has  been  advanced  in  other  periods  of  paper 
money.  The  witnesses  were  bankers,  merchants, 
and  bullion  brokers,  and  included  the  Governor 
and  Deputy-Governor  of  the  Bank  of  England. 
The  first  question  to  which  the  committee  ad- 
dressed itself  was,  therefore,  this  :  Is  the  bank- 
note depreciated  in  value  ?  Is  that  the  cause  of 
the  premium  on  gold,  or  is  there  some  other  ?  To 
us  such  a  question  may  seem  idle,  but  it  certainly 
was  not  so  when  the  Governor  and  Deputy-Gov- 
ernor of  the  Bank  of  England,  and  the  Chancel 
lor  of  the    Exchequer,  took  the  negative.      As 


RESTRICTION'.  2^ 

there  was  no  public  quotation  of  bullion,  transac- 
tions being  illegal,  and  men  handled  "  guineas" 
and  "  shillings"  in  paper  in  ordinary  trade,  it  is 
not  so  surprising  that  such  a  notion  might  at 
any  rate  be  popular.  It  was  assisted  further  by 
the  great  dislike  to  admitting  that  Bank  of  Eng- 
land notes  were  "depreciated"  like  the  paper 
money  on  the  continent. 

There  were  facts  also  tending  to  show  that  dis- 
turbances in  the  value  of  the  precious  metals 
were  taking  place.  Gold  was  growing  dearer 
from  obstructions  in  the  supply,  from  hoarding, 
and  from  demand  for  war  expenditures.* 

Tooke  ("Prices,"  I.  130)  infers  that  "  there 
must  have  been  a  greatly  increased  demand  for 
the  precious  metals  and  a  consequently  increased 
value  of  them  during  the  war,  more  than  suffi- 
cient to  compensate  for  the  utmost  quantity 
spared  from  circulation  as  coin  in  this  country,  or 
even  for  the  utmost  rate  of  annual  increase  from 

*  The  eager  demand  for  bullion  in  England  is  shown  by  an  incident 
mentioned  by  Chevalier.  The  French  Treasury,  by  transactions  with  its 
agents  in  i3o6,  came  into  possession  of  drafts  of  the  Spanish  Government 
on  bullion  in  Mexico,  but  since  the  battle  of  Trafalgar  England  controlled 
the  sea,  and  France  could  not  bring  over  the  metal.  A  Dutch  bank  nego- 
tiated a  transaction  between  the  belligerents  by  which  the  French  Treasury 
realized  its  drafts,  and  an  English  frigate  brought  the  treasure  to  England. 


244  THE  ENGLISH  BANK 

the  mines,"  that  is,  that  the  enhancement  of  the 
value  of  gold  equalled' the  depreciation  of  paper. 
J.  S.  Mill  thinks  that  this  is  proved,  but  Cheva- 
lier (Be.  Pol.  III.  454)  puts  the  matter  in  the 
right  light.  If  gold  had  risen  there  ought  to 
have  been  less  of  it,  and  prices  should  have  been 
lower.  The  bank  paper,  therefore,  even  if  not 
absolutely  increased,  was  in  excess  relatively  to 
what  it  ought  to  have  been  and  would  have 
Ibeen  under  specie  payments.  Prices,  if  not  be- 
llow old  specie  figures,  were  relatively  inflated. 

I  abstain  from  pursuing  this  suggestion,  but  re- 
gard it  as  the  key  to  a  correct  solution  of  the  con- 
tradictions in  which  many  of  the  best  authorities 
on  this  subject  have  been  involved. 

The  second  question  which  the  committee 
had  to  consider,  was :  Why  are  the  exchanges 
18  or  20  per  cent,  against  England? 

The  importance  of  this  inquiry  for  us  may  not 
be  at  ence  apparent.  We  have  very  wisely 
separated  the  quotations  of  exchange  from  those 
of  gold.  We  quote  exchange  in  gold,  and  thus 
the  fluctuations  of  the  two  are  kept  separate  and 
presented  independently.     But  when  there  was 


RESTRICTION.  2^ 

no  quotation  of  gold,  evidently  the  exchange 
rates  were  the  indicator  on  which  the  variations 
between  paper  and  bullion  were  marked. 

But  this  is  not  all.  The  witnesses,  almost 
without  exception  (and  the  exceptions  were  not 
clear  and  precise  in  their  opinions),  maintained 
that  the  adverse  exchange  was  due  to  an  adverse 
balance  of  trade  or  of  payments.  The  question 
involved  was,  therefore,  this  :  Is  an  adverse  bal- 
ance of  trade  the  explanation  of  an  outflow  of 
gold  ? — or  :  Is  a  favorable  balance  of  trade  the 
force  to  which  we  must  look  to  bring  an  influx  of 
gold  ?  There  is  no  question  in  finance  which 
now  demands  our  study  so  imperatively  as  this 
one.  The  false  notions  of  the  balance  of  trade 
infest  almost  every  discussion  of  our  present  cir- 
cumstances which  one  reads  or  hears.  It  is  as- 
sumed that  the  movement  of  the  precious  metals 
from  country  to  country  is  caused  by  the  bal- 
ance of  trade  one  way  or  the  other,  and,  as  the 
movement  of  the  metals  is  a  phenomenon  of  the 
first  importance  in  any  question  of  resumption, 
the  reasoning  which  starts  with  this  doctrine  is 
all  fallacious.    The  balance  of  trade  was  exploded 


246  THE  ENGLISH  BANK 

by  Quesnay  and  his  followers  a  century  ago,  and 
was  gibbeted  in  the  Bullion  Report,  but  it  stalks 
the  money  market  and  the  national  treasury 
to-day,  an  uneasy  ghost,  which  it  seems  im- 
possible to  lay. 

It  is  a  vexatious  task,  and  one  which  always 
makes  a  scientific  man  feel  ridiculous,  to  set  vig- 
orously to  work  to  demolish  an  old  error  which 
no  well-informed  man  any  longer  holds,  but,  in 
our  present  situation,  and  under  our  political  sys- 
tem, popular  errors  are  of  the  utmost  importance, 
and  no  pains  should  be  spared  in  patiently  expos- 
ing them.  The  fallacy  here  is  in  the  word  "bal- 
ance." If  it  means  equilibrium,  it  may  be  used 
correctly  to  denote  the  equality  of  exports  and 
imports,  but  then  it  regulates  itself,  and  no  power 
can  control  it.  If  it  means  remainder,  and  sug- 
gests analogies  of  book-keeping,  it  is  a  mere 
myth  to  which  no  fact  corresponds,  and  is  to  be 
entirely  rejected.  This  question  will  be  noticed 
further  when  we  come  to  speak  of  the  debate 
on  the  report. 

The  third  question  which  the  committee  had 
to  consider  was  offered  by  the  conduct  of  the 


RESTRICTION.  247 

Bank.  It  is  to  be  noticed  that  the  English 
inconvertible  paper  was  a  bank  issue  of  no  fixed 
amount,  while  our  present  paper  money  was 
issued  to  an  arbitrary  limit  at  which  it  was  estab- 
lished. The  question,  therefore,  was  :  How 
shall  the  Bank  know  when  it  has  given  the 
country  just  the  amount  which  it  requires,  and 
when  it  passes  the  limit  so  that  its  issues  become 
excessive  ?  Under  a  convertible  system  they 
found  out,  of  course,  by  a  demand  on  them  for 
gold  for  exportation  (clandestine  or  open,  as  the 
case  might  be).  They  could  not,  generally  speak- 
ing, press  notes  on  the  public  beyond  the  require- 
ment, though  with  a  usury  law  and  a  law 
against  export  this  would  be  possible  to  some 
extent. 

They  therefore  went  on  during  the  specie 
times,  to  discount  all  good  bills,  at  short  date, 
for  real  transactions,  at  five  per  cent,  and 
never  troubled  themselves  about  gold  or  the 
exchanges.  They  pursued  the  same  course  un- 
der the  Restriction,  and  the  question  before  the 
committee  was  :  Whether  these  condi^ons  were 
sufficient,  in    the    absence  of    convertibility,   to 


248  THE  ENGLISH  BANK 

guard   against    inflation,    or   whether   the  Bank 
might  inflate  while  observing  this  rule  ? 

This  question  has  the  highest  importance  for 
us,  if  we  are  to  have  "free  banking"  on  paper. 

The  report  of  this  committee  is  perhaps  the 
most  important  document  in  financial  literature. 
Its  doctrines  have  been  tested  both  ways,  by  dis- 
belief and  by  belief,  by  experiment  of  their  oppo- 
sites  and  by  experiment  of  themselves.  They 
are  no  longer  disputable.  They  are  not  matter 
of  opinion  or  theory,  but  of  demonstration. 
They  are  ratified  and  established  as  the  basis  of 
finance.  They  may  be  denied,  as  the  roundness 
of  the  earth  was  denied  even  five  years  ago,  and 
as  Newton's  theory  of  the  solar  system  was  de- 
nied until  within  twenty-five  years,  but  they  have 
passed  the  stage  where  the  scientific  financier  is 
bound  to  discuss  them.* 

*  On  account  of  the  interest  attaching  to  this  document  and  its  historical 
and  scientific  importance,  it  is  given  in  full  in  the  Appendix.  In  the  notes 
on  the  report  the  subordinate  points  in  which  it  is  regarded  as  erroneous 
or  questionable  are  noticed. 


RESTRICTION. 


SUMMARY. 


249 


The  doctrines  of  this  report  may  be  summed 
up  thus : 

1.  The  value  of  an  inconvertible  currency  de- 
pends on  its  amount  relatively  to  the  needs  of  the 
country  for  circulating  medium  (only  to  a  very  sub- 
ordinate degree  on  the  security  on  which  it  is 
based  or  the  credit  of  the  issuer). 

2.  If  gold  is  at  a  premium  in  paper  the  paper  is 
redundant  and  depreciated.  The  premium  meas- 
ures the  depreciation. 

3.  The  limit  of  possible  fluctuations  in  the  ex- 
changes is  the  expense  of  transmitting'  bullion 
from  the  one  country  to  the  other.  If  it  costs 
2  per  cent,  to  transmit  bullion,  the  fluctuations  of 
the  exchange  due  to  the  ratio  of  imports  and  ex- 
ports never  can  exceed  two  per  cent,  above  or  be- 
low par.  Par  of  exchange  is  the  par  of  the 
metals,  weight  for  weight,  in  the  two  coinages. 

4.  If  there  is  a  drain  of  the  precious  metals,  it 
is  due,  aside  from  exportations  to  purchase  food 
or  pay  armies,  etc.,  to  the  presence  of  an  inferior 
currency  of  some  sort  in  the  country  it  leaves. 


tr 


2«0  THE  ENGLISH  BANK 

5.  If  the  inferior  currency  be  removed,  the  ex- 
changes will  be  turned,  the  outflow  will  stop,  and, 
if  any  vacuum  is  created,  gold  will  flow  in  to  sup- 
ply it. 

Gold  will  not  flow  in  while  the  inferior  currency 
fills  the  channels  of  circulation. 

6.  In  the  presence  of  a  panic  the  duty  of  the 
Bank  is  to  discount  freely  for  all  solvent  parties. 

The  still  more  fundamental  laws  involved  are 
these : 

1.  The  amount  of  gold  in  the  world  will  suffice 
to  perform  the  exchanges  of  the  world.  If  there 
be  more  or  less,  it  will  only  affect  the  average 
level  of  prices  the  world  over. 

2.  Every  nation  will  have  that  portion  of  the 
stock  of  gold  in  the  World  which  is  proportioned 
to  its  trade.  Each  nation  will  have  just  as  much 
as  it  needs. 

3.  A  better  and  a  worse  currency  cannot  circu- 
late together.  The  worse  will  drive  out  the 
better. 

The  committee  also  incidentally  condemn  the 
usury  law  and  the  law  forbidding  the  exportation 
of  the  precious  metals. 


RESTRICTION.  2$l 

The  discussion  of  these  doctrines  in  the  House 
and  by  the  public  will  be  noticed  below.  The 
reader  will  have  a  more  correct  impression  of  the 
attitude  in  which  the  doctrines  of  the  report  came 
up  for  discussion,  if  we  present  the  events,  in 
their  chronological  order. 

THE  CRISIS  OF  1810. 

The  Report  of  the  Bullion  Committee  was  or- 
dered printed  in  June,  1810,  and  was  before  the 
public  in  August  of  the  same  year.  Meantime, 
in  July,  1 8 10,  the  bubble  burst.  The  accounts  of 
the  Bank  were  not  published  at  this  time  and  the 
amount  of  the  discounts  was  not  known.  A  mo- 
tion of  Mr.  Huskisson  on  April  5th,  181 1,  to  call 
on  the  Bank  for  such  a  return,  was  negatived. 
The  Bullion  Committee  had  called  for  a  statement 
of  discounts,  and  had  received  a  paper  under 
promise  of  secrecy.  It  leaked  out  in  some  way, 
and  a  set  of  figures  were  circulated,  but  their  cor- 
rectness seems  always  to  have  been  in  doubt. 
Macleod  stated  that  the  discounts  in  1795  wetfe 
,£2,946,500;  in  1809,  ^15,475^7°°;  and  in  1 8 10, 
^20,070,600. 


252  THE   ENGLISH  BANK 

A  report  was  made  in  1832  of  the  state 
of  the  Bank  from  1778  to  183 1.  It  is  given 
in  Tooke's  "  Prices,"  vol.  II.  There  is  a  similar 
table  (Feb.  reports)  in  McCulloch's  Adam  Smith, 
p.  508,  and  Diet,  of  Commerce,  art.  "  Banks." 
The  two  are  combined  in  the  diagram  opposite  p. 
310,  which  presents  the  movements  of  the  note 
circulation  and  bullion  for  each  six  months  during 
the  period   1790  to   1830. 

Mr.  Baring,  in  his  evidence  before  the  Bullion 
Committee,  and  Mr.  Huskisson  in  his  speech  on 
the  motion  above  referred  to,  bear  ample  testi- 
mony to  the  repetition  of  the  old  phenonemon  of 
speculation  under  inflated  paper  issues.  The  en- 
terprises undertaken  were  indeed  of  the  most  ex- 
travagant kind.  For  instance,  speculations  in 
South  America  took  ludicrous  shapes,  being  in  no 
way  adapted  to  the  circumstances  of  that  country. 
A  company  was  formed  to  send  out  Scotch  milk- 
maids to  make  butter  in  Buenos  Ayres.  But 
when  the  milkmaids  saw  the  beasts  they  had  to 
deal  with  they  shrank  from  the  encounter.  A 
corps  of  laborers  was  required  to  secure  the  ani- 
mals at  milking  time,  and  when  the  butter  was 


HE    ^ 


RESTRICTION.  253 


1  UNIVERSITY 

-       OF 

made   it   was  found   that   the   people   preferred 
oil. 

The  question  of  prices  during  this  period  leads 
to  difficult  and  controverted  questions  which  lie 
beyond  the  limits  set  for  the  present  undertaking. 
The  standard  work  on  the  subject  is  Tooke's 
"  Prices,"  in  which  a  certain  view  is  very  ably 
defended.  Mr.  Tooke  combated  the  popular 
notion,  which  seeks  the  explanation  of  all  price 
fluctuations  in  the  fluctuations  of  the  amount  of* 
currency.  It  is  permitted  to  doubt,  however, 
especially  in  view  of  American  experience, 
whether  he  made  sufficient  allowance  for  the 
radical  differences  between  a  convertible  and 
an  inconvertible  currency,  when  he  discussed 
the  period  of  the  Restriction  on  the  same  princi- 
ples which  he  applied  with  so  much  justice  to  the 
convertible  system.  The  popular  metaphor  of 
11  floating,"  although  it  is  not  well  analyzed,  is 
very  apt.  On  a  system  of  even  nominal  con- 
vertibility the  motives  of  speculation  and  of  price 
fluctuations  lie  outside  of  the  currency  in  indus- 
trial and  commercial  circumstances.  Speculation 
in  the  widest  and  best  sense  controls  the  amount 


254      *  THE  ENGLISH  BANK 

of  the  currency.  On  an  inconvertible  system 
the  amount  of  the  currency  controls  speculation. 
If  it  is  not  redundant  its  effect  is  slight  •  if  it  is 
very  excessive,  it  "floats"  everything,  and  be- 
comes the  controlling  consideration.  No  one 
believes  that  an  inconvertible  currency  suspends 
the  operation  of  any  of  the  economic  laws  which 
govern  prices,  but,  if  it  is  redundant,  it  decides 
whether  the  fluctuations  in  price  of  a  unit  of 
a  given  commodity  shall  be  above  and  below  $i 
or  above  and  below  $2.  Every  contraction  or 
expansion  alters  this  general  level. 

It  is  certainly  erroneous  to  believe  that  redun- 
dant inconvertible  paper  increases  all  prices 
equally.  It  is  one  of  its  hardships  that  it  in- 
creases prices  of  merchandise  more  than  wages ;  of 
luxuries  and  comforts  more  than  of  staple  articles  ; 
that  is,  it  lessens  the  command  of  laborer,  artisan, 
and  farmer  over  comforts.  The  articles  taken  into 
account  by  Tooke  are  all  staple  articles,  and  he 
shows  that  these  had  not  increased  in  price  up  to 
1810.  As  a  test  of  his  argument,  which  cannot  be 
regarded  as  conclusive,  since  it  only  shows  in 
general     that     there    were     ordinary    economic 


RESTRICTION.  255 

causes  to  account  for  the  direction  up  or  down  of 
every  fluctuation  of  each  article,  but  never  meas- 
ures the  exact  force  of  such  causes,  I  have  com- 
bined the  prices  given  by  him  in  his  tables  at 
periods  corresponding  to  those  for  which  the 
state  of  the  currency  is  given  in  the  diagram, 
(opposite  p.  310)  and  inserted  a  line  of  prices. 
This  balances  off  incidental  causes,  and  ought  to 
show  whether  the  average  of  prices  underwent  any 
influence  from  the  amount  of  the  currency  or  not. 
There  is  no  accord  with  the  amount  of  the  Bank 
of  England  circulation,  but  there  is  an  unknown 
factor  of  country-bank  circulation  of  which  we 
have  no  estimate,  save  for  the  years  18 10-18 18. 
(See  p.  284)  The  uppermost  line  in  the  diagram 
represents  the  total  circulation  during  these 
years.  The  parallelism  of  the  price  line  with  it 
is  evident.  Also  the  general  parallelism  of  the 
price  line  with  the  "  price  of  gold  "  line  is  appar- 
ent, and,  if  the  latter  may  be  taken  to  indicate 
the  fluctuation  of  the  total  amount  of  paper,  then 
an  influence  of  the  amount  of  paper  on  the 
general  average  of  prices  seems  undeniable.  It 
is  to  be  remembered  that  the  English  paper  was 


256  THE  ENGLISH  BANK 

never  recklessly  inflated,  and  that,  up  to  18 10,  it 
was  managed  very  conservatively ;  secondly,  that 
the  control  of  the  amount  of  currency  over  prices 
is  more  immediate  and  complete  the  more  redun- 
dant it  is  (it  seems  that,  up  to  18 10,  at  least, 
there  had  been  no  such  inflation  as  to  float 
prices)  ;  and  thirdly,  that  political  and  military 
events  were  at  this  time  exerting  great  and 
sudden  effects  on  prices.  The  fluctuation  of  five 
hundred  shillings  on  the  price  line  in  the  first  six 
months  of  1817,  was  due  to  one  article — oil.  In 
the  next  six  months,  hops  advanced  two  hundred 
shillings.     The  downfall  in  18 18  was  due  to  the 


crisis. 


The  warehouse  system  had  been  introduced 
during  the  last  four  or  five  years,  and  large 
stocks  of  colonial  produce  were  being  carried 
by  means  of  the  expanded  discounts  above  indi- 
cated. Manufactured  goods  found  no  market 
save  as  they  could  be  smuggled  to  the  continent. 
The  raw  materials  on  which  speculation  had  fas- 
tened consequently  fell  in  price.  Commerce  was 
almost  at  a  stand-still.  The  goods  exported  to 
South  America  found  no  market,  for  the  South 


RESTRICTION.  257 

Americans  had  nothing  with  which  to  buy,  and 
the  foolish  enterprises  in  that  direction  could,  of 
course,  bring  in  nothing  but  shame  and  loss. 
British  goods  in  the  Baltic  towns  were  confiscated, 
and  the  climax  was  reached  when  a  period  of 
fine  weather  restored  hopes  of  the  harvest,  and 
ruined  those  who  had  been  led  by  the  bad 
weather  early  in  the  season  to  speculate  for  high 
prices  in  grain.  "  The  crash  began  in  July  with 
the  failure  of  some  great  commercial  houses.  In 
August  a  London  bank  stopped ;  and  several 
country  banks  were  brought  down  by  its  fall. 
Wild  fluctuations  in  prices  followed,  and  in  No- 
vember, the  number  of  bankruptcies  in  England, 
which  had  usually  been  under  one  hundred,  had 
risen  to  two  hundred  and  seventy-three,  '  besides 
stoppages  and  compositions,'  as  the  Commercial 
Report  declared,  '  equal'  in  number  to  half  the 
traders  in  the  kingdom.'  Manufacturers  no 
longer  trusted  the  merchants  nor  employed  the 
operatives.  In  Manchester,  '  houses  were  stop- 
ping not  only  every  day  but  every  hour.' 

"  The  comnjisstons  of  bankruptcy  for  the  year 
now  amounted  to  two  thousand  three   hundred 


25S  THE  ENGLISH  BANK 

and  fourteen,  of  which  twenty-six  were  against 
bankers.  The  hunger  of  the  operative  classes, 
and  the  outcry  against  machinery  as  the  main 
cause,  prepared  the  events  of  the  succeeding  dark 
years. 

PUBLIC  DISCUSSION  OF  THE  BULLION 
REPORT. 

The  Bullion  Report  falling  in  the  midst  of  this 
period  attracted  universal  attention.  It  was 
hotly  discussed  in  all  assemblages  of  merchants 
and  bankers,  and  called  forth  a  swarm  of  pamph- 
lets. It  was  evident  that  the  witnesses  before 
the  committee  had  fairly  represented  the  opinions 
which  were  almost  universal  in  the  business  com- 
munity, and  they  were  all  contrary  to  those  of 
the  report.  It  was  insisted  that  the  paper  had  not 
depreciated ;  that  paper  was  the  best  money ; 
that  to  use  gold  and  silver  was  barbarous  and 
behind  the  age ;  that  "  guineas  were  an  incum- 
brance "  (although  De  Yonge  was  prosecuted 
for  selling  this  incumbrance  for  export — a  point 

*  Harriet  Martineau's  Hist,  of  Eng.  I.  294. 


RESTRICTION.  259 

which  Cobbett  was  fond  of  reiterating)  ;  that  a 
pound  sterling  was  an  "  ideal  unit ;  "  that  a  pound 
sterling  was  the  interest  on  £33  6s.  8d.,  at  three 
per  cent.,  which  would  be  £1  ;  that  paper  money 
supplied  capital,  made  money  plenty,  and  caused 
prosperity  ;  that  the  country  had  grown  up  to 
the  increased  currency ;  that  the  war  could  not 
be  carried  on  without  paper ;  that  the  balance  of 
trade  "  of  course  "  drew  off  the  gold  ;  that  it  was 
impossible  to  resume  while  the  exchanges  were 
adverse ;  that  Great  Britain  was  in  the  debtor 
relation,  and  could  not  resume  while  she  was  so. 
In  short,  there  is  no  possible  fallacy  now  preached 
in  the  United  States  about  paper  money  which 
was  not  then  and  there  brought  forward,  with 
the  single  exception  of  the  ll  elasticity"  notion.* 
As  their  paper  was  not  fixed  in  amount,  that 
notion  had  no  place.  It  seems  that  there  can  be 
no  new  fallacy  to  be  discovered  in  regard  to 
paper  money.     The  field  is  exhausted. 

*  The  reader  who  is  curious  to  pursue  this  analogy  is  referred  to  Cob- 
bett's  Register,  vols.  18  and  19.  Cobbett's  Paper  vs.  Gold  goes  over 
the  whole  subject  of  paper  money  in  detail.  The  quotations  from  contem- 
poraneous literature,  the  letters  from  persons  who  dissented  from  his  views, 
and  the  allusions  to  current  events,  combine  to  form  a  picture  of  the  times 
which  is  in  striking  analogy  with  all  which  we  now  see  and  experience. 


26o  THE  ENGLISH  BANK 

THE    PARLIAMENTARY  COMMITTEE    ON    THE 
COMMERCIAL  CRISIS. 

On  the  7th  March,  181 1,  a  committee  of  the 
House  on  Commercial  Credit  reported.  They 
attributed  the  crisis  to  overtrading,  failure  of 
South  American  speculations,  and  also  to  the 
warehousing  system.  A  meeting  of  merchants 
in  London  passed  resolutions  to  the  effect  that  the 
crisis  was  mainly  due  to  storing  a  large  stock  of 
goods  in  bond  which  the  warehousing  system  had 
encouraged.  The  wealth  and  credit  of  England 
thus  seemed  to  them  to  have  caused  its  calamity. 
It  was  proposed  in  Parliament  to  issue  six  mil- 
lions of  Exchequer  bills  in  loans  to  merchants  and 
manufacturers,  to  enable  them  to  tide  over  the 
crisis.  Those  who  favored  this  plan  adopted  the 
above  explanation  of  the  crisis,  though  nobody 
explained  how  the  colonial  producers  had  forced 
Englishmen  to  carry  their  stocks  for  them  while 
the  continent  was  closed.  The  opponents  urged 
that  the  currency  was  really  redundant  and  was 
the  favoring  circumstance  of  the  speculation,  and 
that  the   issue   of  Exchequer  bills   would  cause 


RESTRICTION.  2£>\ 

further  expansion  and  enhance  the  difficulty. 
The  bill  was  passed,  but  only  two  rniilions  were 
ever  taken  up.  f  L  I  B  R  A  R 

UNIVERSITY 

THE  DEBATE  IN  THE  HOUSE. 

CALIFORN 

Mr.  Horner  opened  the  debate  on  ..Ms^_Re»= — » 
port  on  the  6th  May,  1811,  in  a  very  able 
speech,  giving  an  elucidation  of  the  principles  of 
the  report.  He  had  entered  upon  the  investiga- 
tion with  no  prejudices  and  no  special  knowledge 
of  the  subject,  but  he  brought  to  bear  upon  it  the 
resources  of  a  well-trained  mind,  and  a  single  de- 
termination to  accept  such  results  as  might  ap- 
pear upon  a  full  and  careful  investigation. 

The  propositions  he  advocated  had,  therefore, 
the  character  of  scientific  results,  and  the  man 
who  could  so  undertake  an  important  inquiry  in 
the  face  of  popular  clamor  and  prejudice,  gave 
promise  of  the  highest  statesmanship-.  "  He 
died,"  in  181 7,  "  at  the  age  of  thirty-eight,  pos- 
sessed of  greater  public  influence  than  any 
other  private  nun." 

I  know  of  no  more  instructive  documents  for 
the  student  of  finance  than  the  debates  of  181 1 


262  THE  ENGLISH  BANK 

and  1819.  They  do  not  cover  the  more  abstruse 
questions  in  regard  to  the  regulation  of  a  con- 
vertible currency,  questions  which  yet  require 
attentive  study  and  a  definite  solution,  but  they 
avail  to  establish  those  fundamental  prepositions 
in  regard  to  the  meaning  and  function  of  money, 
which,  if  a  man  once  thoroughly  grasps  them, 
guarantee  him  against  the  most  flagrant  fallacies 
which  obscure  the  subject  of  currency,  and  en- 
able him  to  perceive  these  fallacies  whenever 
they  recur  in  the  thousand  and  one  "schemes" 
which  are  now  daily  set  afloat. 

Of  the  three  questions  involved  in  the  report, 
as  stated  above  :  Is  the  paper  depreciated  ?  Why 
are  the  exchanges  adverse  ?  How  ou^ht  the 
bank  to  regulate  its  issues  ? — the  first  and  third 
have  no  great  importance  for  us.  No  one  denies 
that  our  paper  is  depreciated,  unless  it  be  those 
who  think  that  we  have  "grown  up"  to  the  cur- 
rency, though  that  notion  seems  to  have  gone  out 
of  fashion  again.  The  question  of  regulating  an 
inconvertible  bank  paper  is  not  our  question,  be- 
cause our  paper  is  fixed  in  amount.  But  the 
second  question    of  the  Bullion  Committee    has 


RESTRICTION.  263 

great  importance.  It  is  the  one  in  regard  to 
which  doctrines  opposed  to  those  of  the  Bullion 
Report  are  most  frequently  affirmed  and  most 
profoundly  believed  amongst  us,  and  there  is  no 
hope  of  any  exit  from  our  circumstances  until  we 
get  to  understand  the  laws  which  govern  the  dis- 
tribution of  the  precious  metals  and  those  laws  of 
currency  which  are  connected  therewith.  It  will 
be  remembered,  as  stated  above,  that  the  ques- 
tion about  the  exchanges  is  really  this  question : 
If  the  exchanges  are  adverse  to  such  a  degree  as 
to  produce  a  serious  and  prolonged  outflow  of  the 
precious  metals,  where  must  we  look  for  the 
cause  ?  Is  it  due  to  the  balance  of  payments  or 
to  some  deterioration  of  the  currency  ?  Or,  to  put 
the  same  question  in  another  form  :  If  we  desire 
to  produce  an  influx  of  gold,  to  what  force  must 
we  look  to  cause  it?  Must  we  look  to  the  "  bal- 
ance of  trade,"  or  can  we  do  anything  in  the  mat- 
ter save  sit  still  and  wait  for  the  balance  of  trade 
to  turn  ?  Can  we  bring  it  about  by  correcting 
some  error  in  the  currency  ? 

The    answer   to  these    questions  giren   in  the 
report  and  by  those  who  supported  it  is,  that  the 


264  THE  ENGLISH  BANK 

balance  of  imports  and  exports  never  can  move 
the  exchanges  either  above  or  below  par  more 
than  just  enough  to  start  a  movement  of  bullion. 
On  a  specie  system,  any  outflow  of  bullion  would 
bring  down  prices  and  immediately  make  a  remit- 
tance of  goods  more  profitable  than  one  of  bul- 
lion, and,  if  the  exportation  of  bullion  was  arti- 
ficially continued  (as,  for  instance,  to  pay  the  ex- 
penses of  a  foreign  war),  it  would  reduce  prices 
until  a  counter-current  would  set  in  and  restore  the 
former  relative  distribution  all  the  world  over.  If 
all  nations  used  specie,  or  even  paper  and  specie, 
in  only  due  proportion,  it  would  be  as  impossible 
for  one  nation  to  be  drained  of  specie  as  for  New 
York  harbor  to  be  drained  of  water  by  the  tide, 
and,  on  the  same  supposition,  it  would  be  as 
absurd  for  the  Secretary  of  the  Treasury  or  a 
committee  of  Congress  to  regulate  the  currency 
as  for  the  same  powers  to  see  to  it  that  New 
York  harbor  gets  its  fair  share  of  water  on 
every  tide.  If  a  country  produces  gold,  its  sur 
plus  product  goes  out  as  a  commodity,  without  an 
unfavorable  exchange,  and  does  not  here  come 
intG  account.     If,  therefore,  there  is  an  outflow  of 


RESTRICTION.  26$ 

gold,  serious  and  long-continued,  accompanied  by 
an  unfavorable  exchange,  it  is  a  stPti  that  there 
is  an  inferior  currency  behind  the  gold,  which  is 
displacing  it.  The  surplus  of  imports  of  goods 
above  the  exports  of  goods  is  nothing  but  the 
return  payment  for  this  export  of  gold,  and  is 
not  a  cause,  but  a  consequence.  If,  finally,  we 
want  to  turn  this  tide  and  produce  an  influx, 
there  is  only  one  way  to  do  it,  and  that  is  sim- 
ply to  remove  the  inferior  currency.  As  for 
waiting  for  the  balance  of  trade  to  turn  and 
bring  gold  into  a  country  which  has  a  depreciated 
paper  currency,  one  might  as  well  take  his  stand 
at  the  foot  of  a  hill  and  wait  for  it  to  change 
into  a  declivity  before  climbing  it. 

The  authorities  of  the  Bank  strenuously  denied 
that  their  issues,  so  long  as  they  were  made  at  5 
per  cent,  on  bills  representing  real  transactions, 
at  three  months'  date,  could  become  excessive, 
or  that  the  bank  issues  could  affect  the  ex- 
changes. The  committee  and  their  supporters 
held  that  this  rule  would  not  be  a  guarantee 
against  inflation,  but  that,  if  the  exchanges  were 

adverse  and  bullion  was  being  exported,  it  was 
12 


-2  66  THE  ENGLISH  BANK 

a  sign  that  the  paper  was  excessive,  and  that 
the  Bank  should  check  its  issues.  The  Bank 
maintained  that  it  had  nothing  to  do  with  the 
exchanges,  and  could  not  govern  its  issues  by 
any  reference  to  them.  The  bullionists  main- 
tained that  while  the  paper  was  inconvertible, 
the  adverse  exchange  and  the  premium  on  gold 
were  the  only  signs  by  which  the  Bank  could 
judge  when  its  issues  were  excessive.  Thus 
the  real  issue  was,  whether,  in  case  of  a  drain  of 
specie,  we  must  look  at  the  ratio  of  imports  to 
exports,  or  at  the  ratio  of  paper  currency  to  re- 
quirement, for  the  explanation  of  it,  and  the 
means  of  checking  it. 

In  reviewing  the  debate  briefly,  I  confine  atten- 
tion mainly  to  those  parts  which  bear  on  this  ques- 
tion of  the  exchange. 

Mr.  Horner  offered  sixteen  resolutions,  of  which 
the  most  important  may  be  condensed  as  fol- 
lows : 

t.  That  the  legal  tender  in  England  is  gold  and 
silver  only. 

2.  That  a  shilling  is  -gV  of  a  troy  pound  of 
silver,  TW<r  fine. 


RESTRICTION.  267 

3.  That  a  "guinea"  is  -^  of  a  troy  pound  of 
gold,  "H-  fine. 

4.  That  Bank  of  England  notes  promise  to  pay 
pounds  sterling,  a  pound  being  ff  of  a  guinea 
as  above. 

5.  That  Bank  of  England  notes  are  depreci- 
ated— are  not  worth  what  they  stipulate  to  pay. 

6.  That  the  reason  of  this  is  an  excessive  is- 
sue. 

7.  That  the  exchanges  have  been  greatly  de- 
pressed (or,  as  we  should  say,  very  high*),  for 
a  long  time,  partly  owing  to  heavy  payments 
abroad,  but  chiefly  to  the  depreciation  of  the 
notes. 

8.  That  the  Bank  ought  to  regulate  its  issues 
by  the  price  of  bullion  and  the  exchanges. 

9.  That  the  remedy  is  to  return  to  converti- 
bility. 

10.  That  the  law  extending  the  Restriction  be 
amended  so  as  to  resume  in  two  years. 

*  The  English  quote  exchanges  by  the  amount  of  the  foreign  currency 
which  £1  will  pay.  This  is  not  without  exception,  any  more  than  our  own 
custom  of  quoting  dollars  and  cents  required  to  pay  a  unit  of  the  foreign 
currency,  but  it  is  the  prevailing  usage.  High  and  low  are  therefore  used  in 
an  inverted  application  in  the  two  countries.  Low  exchange  in  this  usage 
tends  to  an  exportation  of  bullion. 


268  THE  ENGLISH  BANK 

Mr.  Rose  criticised  the  report  paragraph  by 
paragraph,  showing  that  it  was  contradictory  to 
the  evidence  offered  to  the  committee.  This  was 
perfectly  true ;  the  committee  took  the  facts  of 
their  witnesses,  but  interpreted  them  in  the  sense 
diametrically  opposed. 

Mr.  Thornton  (member  of  the  committee) 
cited  the  experience  of  the  Bank  of  Paris.  In 
1805  it  advanced  indirectly  on  government  antic- 
ipations.  "  The  consequence  of  this  transaction 
was  an  augmentation  of  the  paper  of  the  Bank  of 
Paris.  A  drain  of  their  cash  followed ;  the  dili- 
gences were  found  to  be  carrying  off  silver  into 
the  departments,  which  the  bank,  with  a  view  to 
its  own  safety,  had  continually  to  bring  back,  with 
much  expense  and  trouble.  The  circulating  med- 
ium of  the  metropolis  had  now  become  evi- 
dently excessive.  Greater  facilities  were  af- 
forded for  borrowing  in  that  quarter  than  in 
other  places,  and  the  country  wished  to  partake 
in  those  opportunities  of  extending  purchases 
which  the  metropolis  enjoyed.  But  the  paper  of 
the  bank  would  not  circulate  in  the  departments. 
It  was  therefore  necessary  first  to  exchange  it  for 


RESTRICTION.  269 

coin,  and  the  coin  being  then  carried  away  from 
Paris,  the  plenty  of  circulating  medium  would 
equalize  itself  through  the  French  territory.  .  .  . 
There  arose  a  premium  on  silver  at  Paris,  and  an 
unfavorable  exchange  between  Paris  and  the  de- 
partments  of  France,  and  this  was  proportionate 
to  the  expense  and  trouble  of  bringing  back  the 
silver  from  the  departments.  .  .  .  The  Bank  of 
Paris  at  length  stopped  payment.  The  government 
was  consulted.  The  bank  was  directed  to  reduce 
its  paper,  and  in  the  course  of  three  months,  hav- 
ing pursued  this  principle,  it  opened  without 
difficulty.  The  discount  on  its  paper,  or,  in  other 
words,  the  premium  on  coin,  had  varied  from  1  to 
10  or  12  per  cent.,  but  after  the  reduction  of  paper 
it  ceased.  The  exchanges  of  France  with  foreign 
countries  had  also  turned  about  10  per  cent 
against  that  country."    . 

Mr.  Vansittart  opposed  the  resolutions.  He 
argued  that  the  committee  ought  to  have  recom- 
mended the  repeal  of  the  restriction  on  the  ex- 
portation of  the  metals,  in  order  to  carry  out 
their  own  principles.  This  was  true ;  but  he  argued 
that  it  was  illegal  to  export,  therefore  the  com- 


270  THE  ENGLISH  BANK 

mittee  were  in  the  position  of  recommending  by 
implication  what  was  illegal  He  denied  that 
there  was  any  "  standard "  in  England,  or  ever 
had  been,  consisting  of  any  weight  of  metal  of  a 
certain  fineness,  but  asserted  that  it  was  the  pre- 
rogative of  the  Crown  to  regulate  the  value  of 
money.  The  proof  of  this  was  that  silver  was 
legal  tender  by  tale  up  to  £25,  but  everybody 
knew  that  the  current  shillings  were  worn  below 
weight ;  therefore,  because  a  man  might  put  off 
smooth  shillings  on  his  creditor  for  a  debt  under 
^25,  there  was  no  standard  of  what  a  shilling 
ought  to  be  in  England.  Also  the  law  allowed 
guineas  to  be  legal  tender  until  worn  1  grain  and 
a  fraction  below  weight,  therefore  there  was  no 
fixed  weight  from  and  below  which  this  grain  and 
a  fraction  was  to  be  reckoned. 

He  also  made  a  great  point  of  demanding  to 
know  whether  "depreciation  "  meant  depreciation 
relatively  to  bullion  or  to  commodities,  or  refer- 
red to  the  credit  of  the  issuer.  No  one  took  the 
trouble  to  reply  that  it  made  no  difference  with 
the  fact. 

He  became  the  hero  of  the  occasion  by  propos- 


RESTRICTION. 


271 


ing  counter-resolutions,  that  the  pound  sterling  has 
no  relation  to  ajiy  weight  of  metal  of  a  given  fine- 
ness, and  that  bank-notes  "  have  hitherto  been,  and 
are  at  this  time,  held  in  public  estimation  to  be 
equivalent  to  the  legal  coin  of  the  realm,  and  gen- 
erally accepted  as  such,  in  all  pecuniary  transac- 
tions to  which  such  coin  is  lawfully  applicable!' 
Guineas  were  at  the  time  at  15  or  20  per  cent, 
premium,  and  members  of  both  houses  testified  in 
the  debate  that,  although  specie  had  disappeared, 
and  all  prices  were  set  in  paper,  yet  there  were 
two  prices  everywhere,  when  metal  was  offered. 

This  gentleman  afterwards  became  Chancellor 
of  the  Exchequer  and  champion  of  the  Sinking 
Fund,  which  was  kept  up  by  borrowing  at  a 
higher  rate  than  it  yielded.  He  ended  life  as 
Lord  Bexley. 

Mr.  Huskisson  (one  of  the  committee)  pointed 
to  the  fact  that  Spanish  dollars,  which  had  been 
imported  for  use  as  "  change,"  and  which  were 
worth  4s.  6d.  in  English  coinage,  had  been  rated 
at  5s.,  and  then,  as  the  depreciation  went  on,  that 
it  had  been  necessary  to  rate  them  at  5s.  6d.  to 
keep   them   in   circulation.      He   asked   whether 


272  THE  ENGLISH  BANK 

the  believers  in  "  abstract  currency  "  ever  heard  of 
an  abstract  payment  or  an  abstract  dinner.  Ad- 
verting to  the  notion  that  £i  was  3  per  cent,  of 
£33  6s.  8d.,  he  asked,  pertinently  enough, 
whether  this  would  not  fit  any  conceivable  depre- 
ciation. The  conception  of  £1  was  necessary  to 
define  £33  6s.  8d.,  which  again  was  necessary  to 
the  definition  of  £1. 

Mr.  Morris  stated  a  case  which  occurred  in 
1 801,  in  which  a  creditor  had  refused  tender  of 
notes,  and  the  court  unanimously  sustained  him 
in  his  position  that  gold  only  was  legal  tender. 

Mr.  Pamell  (one  of  the  committee)  took  more 
clear  and  decided  ground  in  some  respects  than 
any  one  else.  All  parties  generally  agreed  in 
sparing  the  Bank.  He  refused  to  join  them. 
"  If,  instead  of  one  bank  having  been  estab- 
lished with  so  immense  a  capital,  and  such  great 
exclusive  powers,  the  trade  of  banking  had  been 
left  free,  and  several  banks  had  been  allowed  to 
grow  up  with  the  improving  wealth  of  the  coun- 
try, the  public  would  have  derived  equal  accomo- 
dation, without  any  of  the  risk  or  any  of  the  evils 
to  which  it  has  been   exposed  by  the  enormous 


RESTRICTION.  273 

power  that  has  been  given  to  this  one  establish- 
ment." He  declared  that  the  paper  was  in  an 
unsound  state  before  1797.  He  stated  the  fun- 
damental doctrine  that  "  a  country  will  always 
have  as  much  coin  as  it  wants,  provided  no 
impolitic  act  of  legislation  interferes  to  force  it 
out  of  circulation."  He  attacked  the  small  notes, 
declaring  that  the  notes  under  ^5  displaced  coin 
equal  to  their  amount. 

Mr.  Manning,  who  spoke  for  the  Bank,  de- 
clared himself  "  one  of  those  old-fashioned,  prac- 
tical men  who  thought  the  balance  of  payments 
an  article  of  great  importance  in  the  regulation  of 
the  exchanges."  Showing  that  the  foreign  remit- 
tances had  been  ,£26,000,000  the  last  year,  he 
argued  that  the  price  of  gold  must  have  advanced. 

Mr.  A.  Baring,  who  had  been  on  the  commit- 
tee, and  enjoyed  high  authority,  gave  more 
weight  to  the  balance  of  payments  than  the  com- 
mittee, but  joined  them  to  a  certain  extent  in 
attributing  the  unfavorable  exchange  to  the  paper. 
He  thought  the  true  cause  for  anxiety  was  the 
debt  and  not  the  paper  issue. 

Mr.    Sharp    (of   the  committee)  showed  that 
12* 


274  THE  ENGLISH  BANK 

at  Hamburg  and  Amsterdam,  where  there  was 
no  suspension,  but  where  military  oppression  was 
at  its  harshest,  the  exchanges  were  favorable, 
and  that  at  Paris,  the  only  other  place  on  the 
continent  where  inconvertible  paper  had  not  been 
issued,  but  where  war  expenditures  were  highest, 
exchanges  were  favorable  and  there  was  no 
drain  of  the  metals. 

The  Chancellor  of  the  Exchequer,  Mr.  Perce- 
val,  did  not  enter  very  deeply  into  the  question. 
His  point  w^s,  that  no  excess  of  circulation  had 
been  proved.  He  said  that  gold  was  not  the 
standard,  nor  silver,  but  gold  and  silver  bound 
down  by  law  to  a  certain  relation  to  each  other. 
Unfortunately  for  this  notion,  no  law  can  possibly 
bind  them  together. 

Mr.  Canning  made  by  far  the  most  eloquent 
speech  on  the  subject.  He  advocated  the  resolu- 
tions of  Mr.  Horner,  but  thought  it  inexpedient  to 
resume  at  that  time.  He  wanted  the  resolutions 
passed,  except  the  one  for  resuming  in  two  years, 
in  order  to  place  the  House  on  the  record  for 
sound  financial  ideas.  Referring  to  the  Chancel- 
lor's   assertion    that   the    excess    had    not   been 


RESTRICTION.  275 

proved,  he  said  that  it  was  impossible  to  prove 
any  such  thing.  No  relation  exists  between  the 
aggregate  transactions  and  the  requirements  for 
currency,  nor,  if  there  did,  would  it  be  possible  to 
ascertain  the  aofpreofate  transactions.  The  rise 
in  prices  is  a  symptom,  but  only  a  symptom. 
There  is  no  excess  unless  there  is  depreciation, 
and  if  there  is  depreciation  there  is  excess.  The 
only  pertinent  question  is,  therefore,  whether  there 
is  depreciation. 

"  The  noble  lord  (Castlereagh)  has  indeed 
devised  a  singular  definition  of  this  measure 
[of  value].  He  defines  it  to  be  a  '  sense  of 
value  in  reference  to  currency  as  compared 
with  commodities.'  ...  'A  sense  of  value!' 
but  whose  sense  ?  With  whom  is  it  to  originate  ? 
and  how  is  it  to  be  communicated  to  others  ? 
Who  is  to  promulgate,  who  is  to  acknowledge, 
or  who  is  to  enforce  it  ?  How  is  it  to  be  de- 
fined ?  and  how  is  it  to  be  regulated  ?  What 
ingenuity  shall  calculate,  or  what  authority  con- 
trol its  fluctuations  ?  Is  the  sense  of  to-day  the 
same  as  that  of  yesterday,  and  will  it  be  un- 
changed to-morrow  ?     It  does  fill  mr  with  aston- 


2j6  THE  ENGLISH  BANK 

ishment  that  any  man  of  an  accurate  and  reason- 
ing  mind  should  not  perceive  that  this  wild 
and  dangerous  principle  (if  principle  it  may  be 
called)  would  throw  loose  all  the  transactions  of 
private  life,  all  contracts  and  pecuniary  bar- 
gains, by  leaving  them  to  be  measured  from  day 
to  day,  and  from  hour  to  hour,  by  no  other  rule 
than  that  of  the  fancies  and  interests  of  each  in- 
dividual, conflicting  with  the  fancies  and  interests 
of  his  neighbor." 

"  No  dream,  it  must  be  owned,  could  be  more 
extravagant  than  the  visions  of  those  practi- 
cal men  who  have  undertaken  to  refine  away 
the  standard  of  the  currency  of  the  realm  into  a 
pure  abstraction.  There  is  indeed  something 
perfectly  ludicrous  in  the  inconsistency  and  injus- 
tice with  which  they  impute  a  love  of  abstraction 
to  their  opponents,  while  they  are  themselves 
indulging  in  the  most  wanton  departures  from 
substance  and  reality.  '  Beware  of  abstractions/ 
say  they  to  the  Bullion  Committee  when  they 
find  fact  and  law  laid  down  as  the  foundation  of 
its  report.  '  Beware  of  abstractions/  say  they, 
to    the  honorable    and  learned  chairman  of  the 


RESTRICTION.  2J]> 

committee,  when  they  find  in  his  first  seven 
resolutions  nothing  like  theory  or  imagination, 
but  a  clear,  concise, — a  dry  and  faithful  recap- 
itulation of  those  rules  which  the  statutes  of  the 
country  have  established  for  the  weight  and  fine- 
ness of  its  coin.  .  .  .  And  this  admonition 
comes  from  whom? — from  the  inventors  and 
champions  of  '  abstract  currency ' — from  those 
who,  after  exhausting  in  vain  every  attempt  to 
find  an  earthly  substitute  for  the  legal  and  ancient 
standard  of  our  money,  have  divested  the  pound 
sterling  of  all  the  properties  of  matter,  and  pur- 
sued it,  under  the  name  of  the  '  ideal  unit,'  into 
the  regions  of  nonentity  and  nonsense  !  " 

•i  In  addition  to  the  motives  of  policy,  there 
are,  as  I  have  heard  this  night,  not  without  as- 
tonishment and  dismay,  considerations  of  justice 
which  preclude  any  systematic  reduction  of  the 
amount  of  our  paper  currency.  Such  a  reduc- 
tion, it  is  argued,  would  change  the  value  of  ex- 
isting contracts  and  throw  into  confusion  every 
species  of  pecuniary  transactions,  from  the  rent 
of  the  great  landed  proprietor  down  to  the 
wages    of  the  peasant  and   the    artisan.     Good 


278  THE   ENGLISH  BANK 

God !  what  is  this  but  to  say  that  the  system  of 
irredeemable  paper  currency  must  continue  for- 
ever !  What  is  it  but  to  say  that  the  debts  in- 
curred, and  the  contracts  entered  into,  under  the 
old  established  legal  standard  of  the  currency,- 
including  the  debts  and  contracts  of  the  state 
itself,  are  now  to  be  lopped  and  squared  to  a 
new  measure,  set  up  originally  as  a  temporary 
expedient  ?  " 

Referring  to  Mr.  Vansittart's  resolution  about 
paper  and  gold  being  equal,  he  said : 

"  Speaking  impartially,  I  must  say  that  if  I  had 
seen  this  proposition  anywhere  but  where  it  is, 
fairly  printed  and  numbered  in  the  right  honora- 
ble gentleman's  series,  I  should  have  thought  it 
an  invention  of  his  antagonists,  calculated  to  place 
the  fallacy  of  his  doctrine  in  the  most  glaring  and 
ridiculous  point  of  view,  but  carrying  the  license 
of  exaggeration  beyond  pardonable  limits,  and 
defeating  its  purpose  by  the  grossness  of  the 
caricature." 

"  Suppose,  for  instance,  ten  millions  sufficient 
to  carry  on  all  the  transactions  of  the  country : 
fabricate  fifteen  millions  of  paper  instead  of  ten, 


RESTRICTION.  2yg 

the  whole  fifteen  will  circulate.  The  only  conse- 
quence will  be  that  the  commodities  for  which  it 
is  exchanged  will  rise  fifty  per  cent,  in  their  nom- 
inal price.  Make  those  fifteen  millions  twenty— 
the  addition  will,  in  like  manner,  be  absorbed 
into  the  enhanced  prices  of  commodities.  Ex- 
cess of  currency  cannot  be  proved  to  the  convic- 
tion of  those  who  will  not  admit  depreciation  to 
be  the  proof  of  it." 

Mr.  Horner's  resolutions  were  defeated  by  a 
vote,  on  the  first,  of  151  to  75,  and  the  one  for 
resumption  in  two  years  by  180  to  45. 

Mr.  Vansittart's  counter-resolutions  were  passed 
on  the  fifteenth  of  May,  the  one  declaring  gold 
and  paper  equal  by  151  to  75  ;  and  so  the  House 
put  upon  its  records  that  a  guinea  was  equal  to  a 
one-pound  note  and  a  shilling,  when  ^100  paper 
would  buy  only  £%6  in  gold. 

In  this  debate  the  (( theorists  "  and  the  "  prac- 
tical "  men  found .  themselves  in  sharp  contrast. 
The  Bullion  Committee  took  the  evidence  of 
their  witnesses  as  to  fact  but  gave  their  own  ex- 
planation of  the  facts.  They  carried  the  best 
thinkers  in  the  House  with  them,  but  found  the 


28o  THE   ENGLISH  BANK 

practical  bankers  and  city  men,  and  the  great 
mass  who  did  not  understand  the  matter,  and 
who  had  an  invincible  dislike  to  admitting  that 
bank-notes  were  depreciated,  against  them.  In 
this  case,  as  always,  theory  and  practice  are  in- 
separable. The  city  men  had  a  theory  of  their 
facts.  It  was  really  one  theory  against  another ; 
the  one  drawn  from  a  narrow  routine :  the  other 
a  philosophical  and  scientific  generalization  from 
a  broad  range  of  facts.  The  theorists  were 
beaten,  and  the  nation  went  on  for  eight  years' 
further  experiment  of  the  paper.  We  have  now 
to  pursue  the  verdict  of  history  and  experience 
as  between  the  two  parties. 

COMMERCIAL  EVENTS  FROM  1810  TO  1819. 

"Nothing  had  been  seen  since  the  beginning 
of  the  century  to  compare  with  the  distress  of 
181 1  and  181 2.  .  .  .  Our  manufacturers  were 
set  fast,  and  could  not  pay  wages  on  which  their 
workmen  could  live  ;  and  workmen  could  not 
live  on  low  wages  when  the  average  price  of 
wheat  was  112s.  [the  quarter,  of  8  bushels],  and 
that  of  meatn  8d.  or  od.  per  pound.     The   ordi- 


RESTRICTION.  2  8  r 

nary  course  of  manufacture,  particularly  of  the 
hardware  manufacture,  was  broken  up.  The 
factor  *  stepped  in  between  the  employer  and 
the  operative,  and  made  his  market  of  the  neces- 
sities of  both,  leaving  them  discontented  with  each 
other.  The  employer  sold  off  his  rtock  at  a  loss, 
and  the  workmen  made  inferior  wares  by  means 
of  advances  from  the  factor  for  materials. "f 

Nature  seemed  to  make  common  cause  with 
war  and  bad  finance.  The  winter  of  1812  was 
extraordinarily  severe,  and  the  accidents  by  flood 
and  fire  were  numerous.  Crimes  began  to  mul- 
tiply in  that  accord  between  physical  distress  and 
moral  decay  so  often  noticed.  Wages  were 
down  at  starvation  point.  Spinners  had  7s.  6d. 
per  week  in  a  time  of  high  prices  for  the  neces- 
saries of  life.  The  recent  introduction  of  ma- 
chinery and  the  extension  of  the  factory  system 
would  have  caused  an  inevitable  period  of  pres- 
sure on  hand-workers.  Now  these  causes  fell  in 
with  others  to  enhance  the  distress.  The  arti- 
sans, in   striking  analogy  with  our  own   farmers 

*  The  appearance  of  the  "  middle-man  "  ought  to  be  noticed. 
f  Martineau's  History  of  England,  I.  329. 


282  THE  ENGLISH  BANK 

at  the  present  time,  sought  their  foe  in  the 
nearest  and  most  palpable  shape  in  which  the 
bad  circumstances  of  the  time  pressed  upon 
them.  They  attacked  the  machines,  burned  the 
factories,  and  united  in  riotous  disturbances. 
The  corn  laws  were  in  full  force,  and  prevented 
the  relief  which  mieht  have  come  from  other 
countries  in  time  of  scarcity,  while  manufacturers 
were  entangled  in  a  mesh  of  restrictions  of  every 
description,  more  ruinous  even  than  Napoleon's 
Decrees  or  the  Orders  in  Council.  "  The  war 
and  famine  price  [of  grain]  of  1812  was  reached 
again  in  the  latter  part  of  18 16,  181 7,  and  18 18. 
The  golden  days  of  the  deity  that  is  found  in 
no  mythology — the  anti-Ceres — were  returned. 
But  the  people  were  starving.  Misery  and  in- 
surrection filled  the  land."  The  harvest  of  181 5 
was  abundant,  and  to  prevent  importations,  all 
such  were  prohibited  when  wheat  was  under 
80s.  In  1 8 16,  in  spite  of  this  law,  the  agricul- 
turists were  once  more  "  in  distress."  The 
years  when  they  were  not  so,  down  to  the  repeal 
of  the  corn  laws  in  1846,  were  the  few  years 
when  nature  refused  her  bountiful  returns. 


RESTRICTION.  283 

In  1 8 14  peace  was  restored,  and  it  was  be- 
lieved that  commerce  must  at  once  revive.  An- 
ticipating this,  enormous  exportations  were  made 
to  the  continent  and  to  the  United  States. 
"  The  shippers  found  to  their  cost,  when  it  was 
too  late,  that  the  effective  demand  on  the  conti- 
nent for  colonial  produce  and  British  manufac- 
tures had  been  greatly  overrated,  for,  whatever 
might  be  the  desire  of  the  foreign  consumers  to 
possess  articles  so  long  out  of  their  reach,  they 
were  limited  in  their  means  of  purchase,  and 
accordingly  the  bulk  of  the  commodities  ex- 
ported brought  very  inadequate  returns." 

They  found  tKat  it  is  impossible  to  "inundate" 
a  country  with  foreign  commodities,  or  to  "  drain 
*  off  its  bullion  "  by  foreign  trade,  if  it  does  not 
want  to  be  drained.  As  for  a  true  exchange  of 
goods,  the  laws  hampered  it  by  all  sorts  of  re- 
strictions and  prohibitions. 

Thus,  in  18 16,  after  the  long  endurance  of  the 
war,  and  the  dragging  misery  of  181 2,  '13,  and  '14, 
broken  only  by  fitful  gleams  of  prosperity,  this 
"overtrading"  prostrated  commerce  and  manu- 
factures together,  and  agriculture  was  no  better  off. 


284 


THE  ENGLISH  BANK 


Turning  now  to  the  currency  to  observe  its 
movements  contemporaneously  with  these  expan- 
sions of  speculation,  we  find  a  great  difficulty  in 
the  impossibility  of  estimating  the  country  bank 
circulation.  The  best  information  we  have  is 
given  in  the  report  of  the  Lords'  Committee  of 
18 19.  They  gave  two  estimates  as  follows.  The 
rate  of  gold  per  oz.  is  added  from  McCulloch's 
Adam  Smith. 

(Five  figures  omitted. ) 


Country 

Country 

England. 

Banks. 
1st  Est. 

Total. 

Banks. 
2d  Est. 

Total. 

Gold 

per  ounce. 

£. 

s. 

d. 

1810 

22.5 

21.3 

43-9 

21.8 

44-3 

4 

IO 

O 

1811 

23.2 

2O.9 

44.2 

21.5 

44.8 

4 

4 

6 

1812 

23.2 

20.0 

43-" 

I9.9 

43-i 

4 

15 

6 

1813 

24.O 

22.3 

46.3 

22.5 

46.6 

5 

I 

0 

1814 

26.9 

21.6 

48.5 

22.7 

48.6 

5 

4 

0 

1815 

26.8 

20.3 

47.2 

I9.O 

45-8 

4 

13 

6 

1816 

26.5 

i5-5 

42.0 

I5.O 

41.6 

4 

13 

6 

1817 

28.2 

15-8 

44.1 

15.8 

44.1 

4 

0 

0 

1818 

2  7.2 

20.0 

47.2 

20.5 

.47-7 

4 

0 

0 

The  steady  expansion  until  1816  is  at  once  ap- 
parent, and  its  effect  on  prices  is  distinctly  shown 
by  the  gold  premium,  which  advances  with  the 
expansion  of  the  paper.  In  18 16,  when  the  re- 
vulsion came,  the  country  banks  failed  in  great 
numbers.     The  contraction  of  their  issues  was  so 


RESTRICTION.  285 

great  that,  though  the  Bank  of  England  increased 
its  issues  in  18 17,  the  gold  premium  fell,  and 
the  paper  was  within  a  few  pence  of  par.  Re- 
sumption at  this  time  would  scarcely  have  cost  a 
struggle.  However,  no  effort  of  this  kind  was 
made.  On  the  contrary,  no  sooner  was  the  im- 
mediate crisis  over,  than  a  new  expansion  com- 
menced. (See  the  diagram  at  the  end  of  this 
chapter.) 

The  harvest  failing  in  181 7,  the  price  of  wheat 
rose  above  80s.,  and  the  ports  were  opened  ; 
speculation  in  grain  was  active  during  that 
year.  18 18  presented  the  same  phenomena,  but 
now  were  added  speculations  in  silk,  wool,  cotton, 
and  other  raw  materials.  Imports  were  double 
or  treble  what  they  had  been  in  18 16. 

In  181 7,  the  Bank  voluntarily  undertook  to 
redeem  its  notes  dated  before  Jan.  1st,  181 7,  but, 
adhering  to  the  doctrine  that  the  issues  could  not 
affect  the  exchanges,  it  continued  to  expand  the 
circulation,  while  paying  out  gold.  The  laws 
against  exportation  having  fallen  into  neglect,  a 
run  upon  the  Bank  began,  and  a  rapid  exporta- 
tion   to    France   took   place.      The   government 


286  THE  ENGLISH  BANK 

ordered  the  Bank  to  cease  paying  specie.  Ac- 
cording- to  the  doctrines  of  the  Bullion  Report,  to 
expand  the  circulation  with  gold  at  a  premium 
and  the  exchanges  adverse,  and  then  pay  on  de- 
mand, was  as  certain  to  produce,  exportation  as 
it  would  be,  if  a  tub  full  of  water  should  be  lifted 
on  one  side,  that  the  water  would  run  out.  The 
fact  seemed  to  fall  in  with  this  doctrine. 

Another  incident  which  co-operated  in  the  finan- 
cial situation  of  1818  was  the  reduction  of  interest 
on  the  Exchequer  bills.  This,  coming  just  at  a 
time  when  several  foreign  nations  were  anxious 
to  negotiate  loans,  led  to  a  great  exportation  of 
coin  for  investment  in  such  loans,  the  rate  of 
interest  offered  being  higher  than  the  new  rate 
for  Exchequer  bills.  On  a  specie  basis,  and  with 
no  usury  law,  such  a  movement  could  have  no 
perils  ;  but  in  the  existing  circumstances,  the  Bank 
was  led  to  make  more  advances  on  government 
securities  and  augment  the  inflation.  It  paid  off 
by  contract  with  government  those  who  refused 
to  hold  the  securities  at  the  lower  rate. 

The  most  powerful  cause,  however,  which  was 
at  work,-  and  the  one  of  which  the  last-mentioned 


RESTRICTION.  287 

was  only  a  secondary  form,  was  the  reduction  of 
paper  issues  on  the  continent.  The  loans  were 
contracted  to  accomplish  this.  If  it  had  not  been 
that  these  issues  had  produced  abnormal  relations 
throughout  Europe  and  America,  which,  as  soon 
as  they  were  rectified  and  the  normal  state  of 
things  restored,  must  produce  a  redistribution  of 
the  metals,  the  loans  would  have  had  no  impor- 
tance. The  force  of  this  cause  it  is  impossible  to 
estimate,  but  it  lay  at  the  bottom  of  the  fluctua- 
tions of  bullion  at  the  Bank  during  the  years  1816 
to  1819. 

The  crash  came  in  the  fall  of  1818,  and  numer- 
ous failures  occurred  during  the  winter.  By 
February  the  Bank  of  England  circulation  had  . 
fallen  to  25.1  millions.  The  subject  of  cash  pay- 
ments was  now  once  more  forced  on  public  atten- 
tion. X  I  B 

THE  COMMITTEES  OF  M$  l  V  &  R  8  I  T  Y 

Both  Houses  of  Parliament  appointed  commit- 
tees on  the  Resumption.  Each  committee  ren- 
dered two  reports  consecutively.  These  reports 
were  not  in  themselves  very  able  documents,  but  it 


288  THE  ENGLISH  BANK 

appeared  from  the  reports,  and  from  the  evidence 
of  the  persons  examined,  that  the  public  convic- 
tion in  regard  to  the  questions  discussed  in  1811 
had  entirely  changed.  It  was  now  admitted  by  all 
but  very  few  that  the  currency  was  depreciated, 
and  that  the  adverse  exchanges  and  outflow  of 
gold  were  consequences  of  the  presence  of  de- 
preciated paper,  and  must  last  so  long  as  the 
paper  remained — consequently,  that,  to  resume 
specie  payments,  the  whole  problem  was  to  get 
rid  of  the  paper.  These  doctrines  were  disputed 
by  no  one  save,  strangely  enough,  the  directors 
of  the  Bank  of  England.  They  passed  a  reso- 
lution that  they  could  see  no  good  ground  for 
the  opinion  that  the  Bank  had  "  only  to  reduce 
its  issues  to  obtain  a  favorable  turn  in  the  ex- 
changes, and  a  consequent  influx  of  the  precious 
metals." 

There  was,  however,  a  strong  party  of  city 
men  who  opposed  resumption,  and  petitioned 
against  it  on  account  of  the  ruin  which  contrac- 
tion  would  bring  upon  the  country.  The  Bank 
of  England  also  offered  a  "  Representation " 
opposed  to  any  legislation   fixing  a  time  for  re- 


RESTRICTION.  289 

sumption.     The  difficulties  involved  in  contraction 
no  one  denied. 

It  was  agreed  on  all  sides  that  the  movement 
must  be  gradua1  and  careful,  if  made  at  all.  Thus 
the  question  was  narrowed  down  to  this :  Is  it 
expedient,  in  view  of  the  effects  of  the  suspen- 
sion which  we  have  experienced,  and  in  view  of 
the  benefits  of  a  sound  currency,  to  set  to  work 
manfully  to  endure  the  distress  for  the  sake  of 
the  good  ?  On  that  issue  the  city  men  took  the 
negative,  the  statesmen  the  affirmative. 

The  plan  proposed  for  resumption,  was  founded 
on  Ricardo's  theory  of  currency,  more  familiarly 
known  as  the  Hamburg  currency. 

On  this  plan,  metal  may  be  deposited  in  the 
Bank,  being  weighed  and  assayed,  arid  its  value 
in  a  set  denomination  is  put  to  the  credit  of  the 
depositor.  No  coin  is  used,  but  generally  busi- 
ness is  done  by  transfers  on  the  Bank's  books  of 
credits  thus  made.  When  payments  out  of  Bank 
are  demanded,  they  are  made  in  ingots,  weighed, 
assayed,  and  stamped.  It  was  proposed  that 
the  Bank  should  redeem  its  notes  in  ingots  of 

sixty    ounces  weight   after    February   1st,    1820, 
13 


2QO  THE  ENGLISH  BANK 

and  until  the  ist  of  October,  1820,  at  £4.  is.  per 
ounce;  from  October  1st,  1820,  to  May  ist, 
1821,  at  £2,  19s.  6d.  ;  from  May  ist,  1821,  to 
May  ist,  1823,  at  £3  17s.  iojd.  ;  and  after  May 
ist,  1823,  in  coin  on  demand.  This  was  amended 
so. that  it  should  pay  in  ingots  at  £3  17s.  ioid. 
after  May  ist,  1822,  instead  of  May  ist,  1821. 

THE  DEBATE  OE  1819. 

Mr.  Peel  opened  the  debate.  He  said  :  "  He 
was  ready  to  avow,  without  shame  or  remorse, 
that  he  went  into  the  committee  with  a  very 
different  opinion  from  that  which  he  at  present 
entertained,  for  his  views  of  the  subject  were 
most  materially  different  when  he  voted  against 
the  resolutions  brought  forward  in  181 1,  by  Mr. 
Horner,  as  the  chairman  of  the  Bullion  Commit- 
tee. Having  gone  into  the  inquiry  determined 
to  dismiss  all  former  impressions  which  he  might 
have  received, ...  he  had  resolved  ...  to  adopt 
every  inference  which  authentic,  information  or 
mature  reflection  should  offer  to  his  mind.  .  .  . 
He  conceived  them  [the  principles  of  the  Bullion 


RESTRICTION.  29 1 

Report],  to  represent  the  true  nature  and  laws  of 
our  monetary  system." 

**•  All  the  witnesses  examined  before  the  com- 
mittee strongly  recommended  the  establishment 
of  this  [metal]  standard,  one  witness  alone  ex- 
cepted, who  was  an  advocate  for  the  indefinite 
suspension  of  cash  payments.  But  when  this 
witness  was  asked  whether  the  indefinite  suspen- 
sion of  cash  payments  was  to  exist  without  any 
standard  of  value,  he  answered  :  '  No — the  pound 
should  be  the  standard.'  He  was  required  to 
define  what  he  meant  by  the  pound.  His  answer 
was,  '  I  find  it  difficult  to  explain  it,  but  every 
gentleman  in  England  knows  it.'  The  commit- 
tee repeated  the  question  and  Mr.  Smith  an- 
swered, '  It  is  something  which  has  existed  in 
this  country  for  eight  hundred  years — three  hun- 
dred years  before  the  introduction  of  gold.' ' 

"Sir  Isaac  Newton  .  .  .  entered  on  the  ex- 
amination of  this  subject,  but  that  great  man  came 
back  to  the  old,  the  vulgar  doctrine,  as  it  was 
called  by  some,  that  the  true  standard  of  value 
consisted  in  a  definite  quantity  of  gold  bullion 
Every  sound  writer  on  the  subject  came  to  the 


292  THE  ENGLISH  BANK 

same  conclusion — that  a  certain  weight  of  gold 
bullion,  with  an  impression  on  it  denoting  it  to  be « 
of  that  certain  weight  and  of  a  certain  fineness, 
constituted  the  only  true,  intelligible,  and  ade- 
quate standard  of  value,  and  to  that  standard 
the  country  must  return,  or  the  difficulties  of  our 
situation  would  be  aggravated  as  we  proceeded." 

"  That  the  excess  of  commercial  speculation 
which  led  to  such  evils  was  the  consequence  of 
an  over-issue  of  paper  currency  was  a  fact  not  to 
be  disputed." 

"  If  the  continuance  [of  this  system]  should  be 
sanctioned  by  the  House,  let  it  not  be  imagined 
that  they  ought  to  measure  its  future  evils  by  its 
past." 

Silver  had  been  demonetized  in  1816,  and  the 
shillings  since  that  time  pass  current  at  six  per 
cent,  above  their  value  as  metal.  Gold  is  the 
only  legal  tender  for  sums  above  £2.  The 
object  of  this  law  is  to  avoid  the  effect  of  fluctu- 
ations in  the  value  of  the  two  metals  as  compared 
with  each  other.  The  United  States  passed  a 
similar  law  in  1853.     (See  p.  187.) 

It  was  believed  by  many  that  this  law  would 


RESTRICTION.  293 

prove  fatal  to  resumption  in  gold,  and  that  only 
silver  would  circulate.  The  provision  that  silver 
should  be  legal  tender  only  for  40s.  precluded 
any  such  danger. 

Mr.  Tierney  objected  to  the  proposed  scheme 
for  resumption.  He  wanted  to  have  the  Bank 
thrown  on  its  own  responsibility  to  resume  on 
a  set  day,  the  government  repaying,  as  was 
proposed,  ^10,000,000  of  the  advances  of  the 
bank  before  the  day  of  resumption.  He  was 
a  very  able  man,  with  a  reputation  for  pugnacity. 
For  instance :  "  The  House  did  not  withdraw 
its  confidence  from  the  Bank  from  any  doubt 
of  its  wealth  or  integrity,  but  from  a  conviction 
of  its  total  ignorance  of  the  principles  of  political 
economy." 

Alderman  Heygate  denied  inflation  and  de- 
preciation. 

Sir  H.  Pamell  said  that  any  one  who  still 
denied  this  would  pay  little  heed  to  any  further 
elucidation.  He  said:  "  There  was  another 
subject  so  connected  with  the  question  before 
the  House  that  he  thought  it  peculiarly  entitled 
to   the    consideration  of  Parliament.     He  meant 


2g\  THE  ENGLISH  BANK 

the  usury  laws,  for  it  was  evident  that  if  those 
laws  remained  in  their  present  state  they  must 
operate  very  injuriously  with  regard  to  the  sup- 
ply of  capital  for  the  purposes  of  trade,  by 
diminishing  the  means  of  obtaining  discounts." 

Mr.  Gurney  (banker)  opposed  resumption. 
He  dreaded  the  effects  of  contraction,  and 
wanted  the  standard  lowered  so  that  i  oz.  of 
gold  should  be  £4.  os.  6d. 

Air.  Canning  closed  the  debate,  saying  that 
it  was  "  the  unanimous  determination  of  Parlia- 
ment that  the  country  should  return,  as  speedily 
as  possible,  to  the  ancient  standard  of  value 
in  the  establishment  of  a  metallic  currency." 
[Loud  and  universal  cries  of  "  Hear  !  hear  !  " 

In  the  House  of  Lords,  the  Marquis  of  Lans- 
downe  said:  "He  hoped  the  country  would 
never  again  hear  of  the  theories  founded  on 
the  abstract  idea  of  a  pound  sterling  as  a  unit, 
or  a  bank-note  and  a  shilling  being  in  public 
estimation  equal  to  a  guinea ;  on  the  tendency 
of  gold  to  fly  to  other  countries  where  it  was 
dearer,  without  producing  any  change  of  value, 
and    other    absurdities    of    that    kind.      These 


RESTRICTION.  295 

theories,  which  had  been  so  ruinous  to  the 
country,  deserved  to  be  stigmatized  as  they 
were  by  the  bill  before  their  lordships,  every 
enactment  of  which  declared  their  falsehood. 
By  acting  on  them  the  country  had  been  over- 
whelmed by  an  oppressive  mass  of  debt  and 
grinding  system  of  taxation,  all  the  evils  of 
which  were  augmented  by  the  fluctuation  of 
values." 

Lord  Liverpool  thought  that  the  restriction 
had  enabled  the  country  to  go  through  the  war. 
Also,  that  the  opposition  to  the  plan  pro- 
posed really  raised  the  question,  not  of  resum- 
ing sooner  or  later,  but  whether  to  resume  at 
all. 

Lord  Lauderdale  thought  that  the  demoneti- 
zation of  silver  had  done  great  mischief,  turned 
the  exchanges,  and  driven  out  gold  in  18 17  ; 
that  the  paper  was  not  really  depreciated,  but 
at  par  with  silver  coinage  ;  that  it  was  quackery 
to  say  the  Clearing  House  economized  cur- 
rency ;  and  that  the  plan  proposed,  together 
with  the  mint  law,  would  bring  ruin. 

Lord  King  said   that   if    no    day   was  fixed, 


2g6  THE  ENGLISH  BANK 

the  Bank   would    not   get   ready,  as   it  had  not 
since  the  Peace. 

Lord  Grenville  said  that,  "  having  considered 
this  restriction  as  one  of  the  greatest  calam- 
ities under  which  this  suffering  country  had 
labored  ;  having  frequently  had  occasion  to  la- 
ment and  deplore  the  part  which  he  had  him- 
self taken  on  its  original  proposition  in  pro- 
longing it  for  the  term  of  the  then  existing 
war  ...  he  could  not  help  expressing  his 
joy  and  satisfaction  that  the  country  was  at 
last  arrived  at  that  period  in  which  it  could 
look  forward  with  certainty  to  the  repeal  of  this 
injudicious  and  unfortunate  measure."  He  de- 
clared that  an  irredeemable  paper  currency  was, 
under  any  circumstances,  a  greater  evil  than  good  ; 
that  "  he  hoped  it  would  be  recorded  of  him 
as  his  decided  conviction,  that  in  proportion  to 
the  danger  under  which  the  country  labored, 
he  would  almost  say,  in  proportion  to  the 
extent  of  that  danger,  was  the  impolicy  and 
desperate  madness  of  such  a  measure  as  they 
were  now  considering  how  to  rescind.  .  .  . 
He    could    show    how    the    miseries    of    1816 


RESTRICTION.  297 

followed  on  the  issues  of  the  preceding  year  ; 
he  could  show  how  the  excessive  issues  of 
country  paper,  which  could  not  maintain  itself 
like  bank  paper  by  legislative  enactment,  led 
to  a  fearful  depreciation,  and  without  any 
fault  of  individuals,  by  the  mere  force  of  the 
system,  involved  the  whole  kingdom  in  one 
general  desolation.  Not  only  its  trade  and 
commerce,  but  its  agriculture,  its  landed  in- 
terest, even  classes  the  most  remote  from  con- 
nection with,  or  even  knowledge  of,  the  paper 
system,  found  themselves  suddenly  consigned 
to  total  and  inexplicable  ruin.  If  their  lord- 
ships could  see  at  their  bar,  not  merely  the 
victims  of  commercial  failure,  but  those  numer- 
ous persons  of  all  ages,  sexes,  and  classes, 
who  had  unconsciously  suffered  without  even 
understanding  how  or  whence  the  evil  fell  upon 
them,  such  a  spectacle  would  fill  their  lord- 
ships with  horror ;  and  he  sincerely  believed 
that  not  only  would  no  voice  be  raised  for  the 
maintenance  of  such  a  system  in  commerce,  but 

not  even  in  war." 
13* 


293  THE  ENGLISH  BANK 

He  also  urged  strongly  the  necessity  of  making 
the  Bank  independent  of  government. 

The  bill  was  passed,  and  the  government  hav- 
ing repaid  ^10,000,000  of  the  advances  of  the 
Bank,  which  was  recognized  as  an  indispensable 
condition  of  resumption,  the  act  went  into  opera- 
tion. At  the  same  time  the  law  forbidding  the 
exportation  of  the  precious  metals  was  repealed. 

OPERATION  OF  PEELS  ACT  OF  1819. 

A  great  fall  of  prices  took  place  in  1 819  as  a 
sequel  to  the  operations  of  18 18.  Tooke  denies 
strenuously  that  the  operation  of  the  act  caused 
this  fall.  There  was  no  run  upon  the  Bank  for 
gold,  partly  because  the  people  did  not  care  for 
it,  partly  because  the  plan  of  ingot  redemption 
did  not  tempt  them  to  do  so,  but  chiefly  because 
the  fall  in  prices  turned  the  exchanges  and  there 
was  no  profit  on  exportation.  The  Bank  steadily 
contracted  its  issues,  and  the  country  banks  were 
forced  to  do  the  same.  The  issues  and  the  price 
of  gold  were  as  follows  : 


RESTRICTION. 


299 


Bank  of  Eng- 
land notes. 

Bullion  in  Bank 
of  England. 

Price  of  gold  per 
ounce. 

Feb. 

1819 

25.I 

4.1 

£■ 
4 

s.            d. 

1        6 

n 

a 

l820 
I82I 

1822 

23-4 
23.8 
18.6 

4.1 
11. 8 
11. 0 

3 
3 

19      11 

17        *cj 

a 

1823 

18.5 

10.3 

The  Bank  resumed  payment,  by  its  own  wish 
and  the  permission  of  Parliament,  on  May  1,  182 1. 

Peel's  act  would,  under  any  circumstances  of 
trade,  have  enforced  contraction  and  accom- 
plished resumption,  but  under  the  series  of  events 
of  the  following  years,  it  is  certain  that  it  had  no 
direct  effect  whatever.  The  revulsion  and  fall  of 
prices,  and  shock  to  credit  of  18 19  repeated  the 
opportunity  of  181 7.  The  exchanges  became 
favorable,  more  currency  was  needed,  as  always 
in  a  time  of  crisis,  and  the  Bank  contraction  which 
did  not  begin  until  late  in  18 19  (the  circulation 
was  higher  in  August  than  in  February)  took 
place  easily,  as  confidence  was  restored  and  notes, 
becoming  abundant,  flowed  to  the  Bank,  without 
exerting  any  pressure  on  the  market,  unless  it 
might  be  the  negative  one  of  restraining  specula- 
tion.    Peel's  act  had   only  the   indirect    effect  0/ 


300  THE    ENGLISH  BANK 

setting  a  time  for  resumption  which  was  under- 
stood to  be  in  earnest,  whereas  former  dates 
fixed  had  been  practically  indefinite  adjournments. 
England  is  the  only  country  which,  after  falling 
into  the  use  of  inconvertible  depreciated  paper, 
has  returned  to  specie  payments  save  through 
bankruptcy.  It  did  so  by  taking  advantage  of 
the  revulsion  following  a  commercial  crisis  to 
reduce  the  amount  of  the  paper. 

On  issuing  from  the  era  of  redundant  and  de- 
preciated paper,  it  is  necessary  to  turn  to  prices 
as  the  test  and  indication  of  economic  circum- 
stances. (Seep.  253.)  The  inquiry  into  prices, 
however,  is  the  most  difficult  and  delicate  which 
the  economist  is  called  upon  to  undertake,  and 
one  of  the  most  perilous,  whenever  undertaken 
piecemeal,  or  without  skill,  or  to  support  a  theory. 

Tooke  investigated  prices  during  this  period 
with  a  skill  which  is  universally  acknowledged, 
and  proved  conclusively  that  the  fall  which  took 
place  was  not  due  to  contraction.  Gold  was  con- 
tinually coming  into  circulation  and  filling  up 
any  vacuum  caused  by  the  contraction. 

The  years   18 19-1822  were  years  of  abundant 


RESTRICTION.  -OI 

harvests  and  low  prices  for  grain,  and  the  agri- 
cultural interest  was  accordingly  in  distress. 
There  were,  however,  additional  causes  for  this 
distress.  During  the  war,  the  high  prices  had 
led  the  farmers  to  increase  their  expenditures  and 
raise  their  style  of  living.  Poor  lands  had  also 
been  hired  at  high  prices  and  brought  under  culti- 
vation. These  injudicious  ventures  could  not  be 
sustained  in  times  of  peace  and  plenty,  and  those 
who  had  embarked  in  them  found  themselves 
ruined.  In  1822  Mr.  Western  led  an  assault  upon 
Peel's  bill  as  the  cause  of  the  distress,  and  the 
resumption  then  went  through  its  last  and  se- 
verest peril.  It  is  true  that  the  proposition  of 
Mr.  Western  for  a  committtee  of  inquiry  into  the 
action  of  the  bill  was  negatived  by  a  heavy  vote, 
but  it  appeared  that  there  were  some  active  and 
influential  men  who  wanted  to  return  to  paper,  and 
others  who  thought  a  great  mistake  had  been  made 
in  not  accepting  the  depreciation  and  reducing  the 
standard,  and  they  were  supported  by  a  clamorous 
party  suffering  under  distress.  They  did  at  last 
secure  the  concession  that  the  notes  under  £5 
were  allowed  to  circulate  until  1832,  instead  of 


;02 


THE  ENGLISH  BANK 


being   withdrawn  in    1824  as   the  law  then  pro- 
vided. 

Meanwhile  manufactures  were  steadily  recover- 
ing, and  wages  were  advancing  in  purchasing 
power  by  the  fall  of  grain  and  imported  com- 
modities. 

CRISIS    OF  1825,   AND    ABOLITION    OF    SMALL 

NOTES. 

In  the  year  1824  the  interest  on  the  govern- 
ment five  per  cent,  stock  was  reduced  to  4  per  cent, 
the  Bank  engaging  to  pay  off  the  dissentients. 
One  result  of  this  was  to  lead  to  large  invest- 
ments in  foreign  loans.  The  prosperity  of  man- 
ufactures led  to  large  importations  of  cotton  and 
other  raw  materials.  Joint  stock  companies  were 
organized  to  engage  in  all  sorts  of  enterprises, 
some  of  them  fanciful  and  absurd,  and  a  great 
speculation  in  South  American  mines  began. 
The  state  of  the  Bank  was : 


Notes. 

Bullion. 

Feb. 

1823 

l8.5 

IO.3 

t\ 

1824 

I9.7 

I3.8 

<t 

1825 

2U.7 

8.7 

u 

1826 

25-4 

2.4 

u 

1827 

21.8 

IO. I 

RESTRICTION.  303 

In  1823-4  the  Bank,  being  strong  in  bullion 
extended  its  discounts,  thus  sustaining  the  ad- 
vancing  movement  by  the  usual  mode  under 
the  convertible  system.  But  at  the  end  of  1824 
the  exchanges  became  adverse,  and  an  outflow 
of  bullion  began.  The  Bank,  nevertheless,  con- 
tinued to  extend  its  issues.  In  May,  1825,  prices 
suddenly  fell.  The  speculation  came  to  a  crisis  ; 
country  banks  failed  in  large  numbers  ;  one  of  the 
large  London  banking  houses  failed,  and  all  had 
to  undergo  severe  runs.  It  was  not  until  some 
months  later  that  the  mercantile  community  sus- 
tained the  shock,  but  it  fell  upon  them  with  terri- 
ble force.  The  bank-note  now  came  in  to  fulfil 
its  office  at  such  a  period.  During  the  rise  of 
the  speculation,  the  issues  had  been  only  grad- 
ually and  slowly  increased,  but,  in  the  break- 
down of  credit,  notes  were  required  in  large 
numbers.  The  question  was  whether  the  Bank 
should  extend  its  issues,  and  run  the  risk  of  ruin- 
ing itself,  or  contract,  and  ruin  the  public.  It 
adopted  the  former  course,  discounting  freely  at 
5  per  cent,  for  all  solvent  borrowers.  The  lucky 
discovery  of  a  box  of  £1  notes  which  had  been 


304  THE  ENGLISH  BANK 

withdrawn,  stored  away,  and  forgotten,  enabled 
them  to  pursue  this  policy  to  the  utmost.  It 
appeared,  however,  that  very  few  of  these  last 
notes  were  needed.  There  are  two  elements  in 
every  commercial  crisis,  one  the  crisis  of  a  false 
or  exaggerated  mercantile  movement  of  some 
sort,  and  second,  the  panic  of  those  who  fear 
everything,  but  they  do  not  know  what.  The 
plan  here  described  is  a  specific  remedy  for  the 
panic  element.  It  was  prescribed  by  the  Bullion 
Report,  and  thus  another  of  its  doctrines  was 
ratified. 

The  Bank  found  itself  with  only  ,£2,459,510  in 
bullion  in  February,  1826.  To  the  parliament- 
ary Committee  appointed  to  investigate  the 
crisis,  Mr.  Horsley  Palmer  testified  that  the  drain 
of  gold  was  chiefly  due  to  the  £1  notes,  these 
beine  in  the  hands  of  holders  most  liable  to 
panic.  Small  notes  were  at  this  time  subject  to 
a  stamp,  and  the  government  took  the  step  of 
prohibiting  any  more  stamps  to  be  issued. 

When  Parliament  met  this  step  was  blamed  as 
unconstitutional,  but  the  ministers  declared  that 
they  had  taken  the  step  because,  if  any  day  had 


RESTRICTION.  305 

been  fixed  beyond  which  no  stamps  should  be 
issued,  or  if  the  subject  of  small  notes  had  come 
up  for  discussion,  there  would  have  been  a  rush 
for  stamps.  They  proposed  to  allow  the  small 
notes  already  stamped  to  run  until  April  5,  1829 
and  then  to  allow  no  more  notes  under  ^5  in 
England.  The  debate  on  this  proposition  was 
long,  and  on  the  part  of  the  opposition  uncleai 
and  not  to  the  point. 

The  proposition  was  advocated  by  Mr.  Hus- 
kisson,  who  said  that  "  a  permanent  state  of  cash 
payments  and  a  circulation  of  one  and  two  pound 
notes  could  not  co-exist."  He  urged  that  specie 
was  the  poor  man's  currency,  and  that,  while 
there  were  no  small  notes,  commercial  crises 
might  sweep  over  the  mercantile  community,  but 
could  not  affect  the  laboring  classes. 

Mr.  Grant  said,  that  "  in  every  wise  system 
of  currency  it  was  a  primary  element  that  paper 
should  be  convertible  at  pleasure  into  a  metallic 
currency,  and  that  all  small  payments  and  the 
great  bulk  of  the  circulation  should  be  in  gold." 

Alderman  Hey  gate  said,  that  the  country 
bankers  would  be  forced  to  withdraw  their  small 


3o6  THE  ENGLISH  BANK 

notes  within  three  years,  which  would  bring  ruin, 
He  said  that  the  act  of  1819  was  intended  to  bring 
back  the  old  standard,  but  that  it  had  raised 
that  standard.  The  proof  was  that  the  coins 
were  exported  on  account  of  their  "  fineness 
and  beauty." 

Mr.  A  lew  cod  propounded  a  new  law  of  the 
distribution  of  the  precious  metals :  "  The  share 
of  the  precious  metals  which  any  country,  rich  or 
poor,  could  maintain,  if  there  was  any  truth  in 
experience,  would  be  in  the  proportion  of  about 
half  an  ounce  of  gold  against  a  quarter  [8 
bushels]  of  wheat,  which  gave  40s.  or  50s.  a 
quarter  of  this  money,  and  no  more." 

Thus  the  opposition  ran  over  the  whole  history 
of  the  Restriction  and  the  whole  theory  of 
money,  but  the  question  was,  whether,  having  a 
convertible  currency,  they  should  have  in  it  notes 
under  £5. 

Mr.  Canning  said  :  "  If  on  the  present  occa- 
sion I  am  for  withdrawing,  within  a  limited  time, 
the  one-pound  note  from  circulation,  it  is  not 
from  the  mere  love  of  theory,  but  because  I  have 
seen  it  practically  proved  in    the  experience  of 


RESTRICTION.  307 

years  which  have  elapsed  since  the  Bullion  Com 
mittee  sat,  that  the  circulation  of  the  small  notes 
cannot  co-exist  with  a  metallic  currency." 

"  It  is  vain  to  think  of  introducing  gold  amidst 
the  overwhelming  spread  of  small  paper  circula- 
tion. The  small  paper  chokes  up  all  the  ordinary 
channels  of  circulation,  so  that  the  gold,  though 
issued  from  the  Bank,  cannot  flow  into  them,  but 
is  returned  to  the  source  from  which  it  came." 

A  test-vote,  not  directly  on  the  question, 
showed  two  hundred  and  twenty-two  in  favor, 
and  thirty-nine  against.  The  small  notes  were 
withdrawn  in  1829. 

There   have   been   fluctuations    enough    since 
then,    and    events    which    have    illustrated    and 
proved  some  weighty  principles  of  currency,  but 
they  lie  beyond  the  scope  of  the  present  under 
taking. 

Specie  payments  could  not  be  regarded  as 
fixed  on  a  solid  basis  until  the  small  notes  were 
withdrawn.  In  the  year  1827,  the  Bank  of  Eng- 
land directors  gave  in  their  adhesion  to  the  doc- 
trines of  the  Bullion  Report,  and  those  doctrines, 
together  with  the  exclusion  of  the  small  notes. 


3o8  THE  ENGLISH  BANK 

have  been  the  foundation  of  the  English  convert- 
ible currency  ever  since. 

The  question  how  to  regulate  a  convertible 
currency  is  still  hotly  disputed,  and  is  far  from  a 
solution.  It  seems  that  art  can  help  nature  here 
as  well  as  elsewhere,  but  we  may  be  very  sure 
that  it  can  so  help  here  only  as  it  does  elsewhere, 
— by  following  and  assisting,  not  by  supplanting 
and  coercing. 

A  convertible  currency  is,  like  steel,  not  a  nat- 
ural product,  but  an  artificial  development,  and 
in  many  respects  superior,  but  it  is  as  if  we  had 
not  yet  discovered  the  law  by  which  to  make 
the  artificial  product  so  that  it  should  be  neither 
too  brittle  nor  too  elastic,  too  hard  nor  too 
soft.  One  thing  is  very  certain — that  our  blun- 
dering experiments  have  hitherto  cost  us  far  more 
than  we  have  gained  or  saved. 

So  much,  however,  in  regard  to  the  laws  which 
govern  paper  issues,  as  was  laid  down  in  the  Bul- 
lion Report,  is  established  beyond  dispute.  Its 
doctrines  are  the  alphabet  of  modern  finance. 

The  assertion  has  been  many  times  made,  in 
the   United  States,  within  the  last  year,  that  the 


RESTRICTION.  309 

period  of  the  Restriction,  in  England,  was  a 
period  of  prosperity  and  financial  success.  A 
diligent  reading  of  the  appropriate  documents, 
historical  and  legislative,  has  failed  to  bring  to 
light  any  evidence  at  all  to  support  this  notion, 
or  to  lead  to  acquaintance  with  any  English 
authority,  contemporaneous  or  subsequent,  who 
looks  upon  this  period  as  anything  else  than  a 
time  of  distress  and  humiliation. 


EXPLANATION  OF  THE  DIAGRAM. 

In  the  following  diagram,  some  of  the  movements  of  the  period  of  the 
Bank  Restriction  are  presented  in  a  manner  more  distinct  than  any  statis- 
tics can  attain.  The  Bank  of  England  circulation  advanced  steadily  during 
the  Restriction,  under  the  rule  adopted  by  the  directors  (p.  265).  So 
soon  as  the  crisis  of  1818  brought  a  reduction,  and  Peel's  act  of  1819  en- 
forced resumption,  the  Bank  was  forced  to  act  upon  the  principles  of  the 
Bullion  Report,  though  it  still  rejected  them  in  theory,  and  retain  its  notes 
as  they  came  back.  So  soon  as  the  reduction  of  the  issues  began,  every- 
thing conspired  to  assist  it,  and  it  went  on  until  August,  1822,  although 
specie  payments  were  nominally  resumed  in  May,  1821.  The  line  at  the 
top  of  the  diagram,  between  1810  and  1819,  represents  the  total  cir- 
culation of  Bank  of  England  and  country-bank  notes  for  the  only  period 
for  which  we  have  any  estimate  of  them  (see  pp.  255  and  284).  It  shows  the 
nett  reduction  in  1816,  though  the  Bank  of  England  kept  up  and  increased 
its  notes,  and  the  increase  in  bullion  (lowest  line  in  the  diagram)  meets  it 
exactly  in  accordance  with  the  doctrine  enunciated  by  the  bullionists. 
When  the  total  notes  increased  again  in  181 7,  the  bullion  declined.  When 
the  Bank- of. England  contracted,  in  1819  and  1820,  the  country  banks  were 
forced  to  do  the  same,  and  the  bullion  increased.  In  1S24,  under  new  in- 
flation, it  declined.  The  sudden  increase  and  decrease  of  Bank  of  England 
notes  in  1825,  was  in  obedience  to  the  doctrine  of  the  Report  in  regard  to 
the  method  of  dealing  with  a  panic  (pp.  250,  304). 

On  the  price  line,  see  p.  255.  The  articles  whose  prices  are  summed  up 
each  six  months  are:  1  cwt.  ashes;  I  cwt.  bristles;  1  cwt.  coffee;  1  lb. 
cochineal ;  1  cwt.  copper  ;  100  lbs.  cotton  ;  1  ton  flax  ;  1  ton  hemp  ;  1 
cwt.  hops;  1  -^  cwt.  lead  •,  1  lb.  indigo  ;  1  ton  iron  ;  252  gals,  oil  ;  1  cwt. 
butter  ;  304  lbs.  mess  beef;  I  cwt.  rice  ;  I  cwt.  saltpetre  ;  1  lb.  raw  silk  ; 
I  lb.  cinnamon  ;  100  lbs.  pepper ;  1  gal.  rum  ;  1  cwt.  sugar ;  1  cwt.  tallow ; 
I  barrel  tar  ;  1  lb.  tea  ;  1  load  timber  ;  1  cwt.  tin  ;  100  lbs.  tobacco  ;  1 
lb.  wool  ;  8  bu.  wheat.  I  have  varied  somewhat  from  the  units  of  quan- 
tity in  Tooke's  tables  in  order  that  the  fluctuations  of  each  article  might 
have  an  equal  effect  on  the  aggregate. 

The  price  of  gold  is  taken  from  the  table  in  Tooke's  "  Prices,"  Vol.  II. 


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■ 


CHAPTER   III. 

AUSTRIAN    PAPER    MONEY.* 

THE  First  Austrian  National  Bank  was 
founded  about  the  year  1700,  but  was 
transferred  to  the  authorities  of  the  city  of  Vien- 
na very  soon  after.  This  bank  issued  notes  in 
moderate  amounts,  which  bore  interest  and  com- 
manded a  premium.  In  1762,  this  apparently 
rich  source  of  wealth  was  seized  upon  as  a  re- 
source for  the  distress  of  the  government,  and 
from  that  time  to  this  Austria  has  been  under 
the  dominion  of  paper ;  from  that  time  on,  for 
more  than  a  century,  every  year  has  seen  a  deficit 
.in  the  Austrian  finances. 

The  new  notes  bore  no  interest,  and  were  for 
sums  from  five  to  one  hundred  gulden.  They 
''were  to  be  taken  everywhere  in  payment."  It 
was  forbidden  to  export  coin,  and  base  coins  of 
small    denominations   were    issued.     The    latter, 

*  Republished  frorn  the  "Financier"  of  October  25th,  1S73. 


312  AUSTRIAN  PAPER  MONEY. 

nevertheless,  went  to  a  premium  in  paper  as  the 
notes  increased.  This  increase  was  at  the  same 
time  persistently  represented  by  the  government 
as  a  temporary  necessity,  the  Bank 'having  been 
allowed  to  issue  notes  in  return  for  its  advances 
to  the  government.  "  In  1802,  the  country  was 
flooded  with  counterfeit  seven-kreutzer  pieces." 
They  nevertheless  were  at  a  premium  in  paper. 
In  1807,  copper  coins  were  issued  so  base  as  to 
be  on  a  level  with  the  paper.  Meanwhile  the 
issues  had  been  increasing ;  the  government  had 
found  that  there  was  no  returning  on  the  course 
on  which  it  had  entered.  The  wars  with  Napo- 
leon demanded  supplies,  and  there  were  no  re- 
sources. The  prohibitive  system  had  crushed 
the  indigenous  industry  of  the  country,  made 
smuggling  the  most  profitable  of  all  forms  of  busi- 
ness, and  created  a  few  weak,  exotic  industries. 
Prices  had  risen  so  high  that  the  nominal  sums 
required  for  army  supplies,  etc.,  were  enormous. 
The  note  issue  in  1796  was  47,000,000;  in  1800, 
it  was  200,000,000 ;  in  1806,  it  was  449,000,000. 
There  were,  besides,  counterfeits  in  immense 
quantities.     The  laws  against  counterfeiting   or 


AUSTRIAN  PAPER  MONEY.  313 

being  possessed  of  counterfeits  were  so  severe, 
and  the  difficulty  of  detecting  them  so  great,  that 
people  feared  to  take  notes  at  all,  and  this  of 
course  enhanced  the  premium. 

The  succeeding  years  saw  new  "patents"  in 
regard  to  the  finances  issued  every  few  months  ; 
each  project  was  more  desperate  or  more  tyran- 
nical than  the  last.  Trust  funds  were  required 
to  be  invested  in  public  securities  or  bank-notes, 
and  deposited  with  the  Bank;  then  these  were 
taken  by  the  State,  which  became  responsible  to 
the  owners.  All  silver  plate  was  ordered  to  be 
brought  to  the  public  offices  to  be  assayed  at  a 
heavy  charge.  It  would  be  tedious  to  enumerate 
these  desperate  and  revolting  financial  measures ; 
each  was  brought  forward  with  pleas  of  necessity, 
loud  protestations  of  desire  for  the  national 
welfare,  confessions  of  past  faults,  and  promises 
that  each  measure  should  be  final.  All  of  them, 
however,  proved  unavailing. 

In  1 8 10,  the  next  stage  was  reached,  a  stage 
wh:ch  the  student  of  paper  money  meets  so  reg- 
ularly in  its  history,  that  he  anticipates  it  sooner 
or  later,  in  one  form  or  another,  in  every  new  in- 

14 


314  A  USTRIAN  PAPER  MONE  Y. 

stance.  A  new  class  of  notes  was  issued  called 
"  redemption-notes,"  to  represent  coin,  and  to 
exchange  for  paper  at  the  rate  of  one  for  three. 
By  using  these,  the  government  prevented  its 
expenditures  from  running  up  such  enormous 
figures.  This  plan,  and  others  intended  to  sup- 
port it,  failed  to  'attract  even  the  popular 
attention  ;  all  confidence  in  the  promises  of  the 
government  was  lost.  The  misery  was  wide  and 
deep,  reaching  even  the  well-to-do  classes.  Per- 
sons on  salaries  found  themselves  in  the  pecuniary 
position  of  day  laborers  ;  the  peasants  and  coun- 
try people  who  tilled  the  soil  had  its  products 
for  food,  but  trade  was  brought  to  a  stand-still. 
Says  Springer,  whose  history  we  follow  and  quote 
here  and  below : 


The  pecuniary  corruptibility  of  the  Austrian  civil  officers,  and 
the  opinion  cherished  by  all  classes,  even  by  the  Emperor,  that 
Che  civil  servants  did  not  serve  the  state  honestly,  but  would  at 
any  time  sacrifice  its  interests  to  their  own,  took  its  origin  in 
this  period.  The  civil  officers  carried  on  afterwards  as  a  habit 
what  they  had  learned  in  a  period  of  necessity. 


The  wretchedly  paid  custom  officers   connived 
at  and  shared  in  the  smuggling.     In    1810  the 


AUSTRIAN  PAPER  MONEY.  315 

bank-notes  fell  to  500  for  100,  then  to  8oo>  and 
finally  to  1,095. 

This  state  of  things  came  to  a  crisis  in  181 1. 
On  the  20th  of  February  of  that  year  a  patent 
was  issued,  whose  appearance  and  character  the 
historian  thus  describes : 

The  secret  document  which  was  to  decide  the  weal  or  woe  of 
millions  had  been  sent  out  sealed  to  the  government  authorities. 
They  were  to  break  the  seals  at  five  o'clock  in  the  morning  on 
the  15th  of  March,  and  to  post  up  the  document  an  hour  later. 
Long  before  daybreak,  crowds  were  collected  in  the  streets  of 
all  the  cities  waiting  for  the  fateful  moment,  and  betraying  as 
much  excitement  as  if  the  report  of  a  decisive  battle  were  ex- 
pected. With  eager  haste  they  drank  in  every  word  of  the 
document  .  .  .  which  sowed  the  seeds  of  hate,  and  made 
distrust  of  the  monarch  a  universal  feeling.  Some  few  could 
rejoice  :  they  had  unexpectedly  become  rich.  Others,  and  by 
far  the  most,  cursed  and  lamented.  The  fate  of  the  beggar 
had  befallen  them  in  a  night. 

The  bank-notes,  of  which  there  were  over 
a  thousand  million  gulden  in  circulation,  were 
reduced  by  the  proclamation  to  one-fifth  of 
their  nominal  value,  and  were  to  be  exchanged 
for  redemption-notes,  called  the  Viennese  legal- 
tender.  These  latter  became,  and  remain,  the 
Austrian  legal- tender  currency.  The  govern- 
ment promised  to  issue  of  these  only  enough  to 
convert    the    outstanding    bank-notes,  viz. :    212 


316  AUSTRIAN  PAPER  MONEY. 

million  gulden.  Taxes  were  to  be  paid  in  the 
new  currency;  government  pensions  and  salaries 
in  the  same.  The  debased  30  and  15  kreutzer 
coins  were  to  be  rated  at  6  and  3  kreutzers, 
and  the  interest  on  the  national  debt  was  to 
be  reduced  one-half.  The  smallest  redemption 
notes  were  for  25  gulden,  so  that  the  poor- 
est people  who  held  1,  2  and  5  gulden  notes 
could  not  exchange  them.  On  the  other  hand, 
it  was  believed  that  certain  persons,  who  hastily 
adjusted  their  affairs  just  before  the  patent 
was  issued,  in  a  manner  to  avoid  loss,  had 
received  secret  information  of  its  contents. 

In  the  following  May  the  redemption-issues 
were  at  216,  and  in  June  at  338;  the  bank- 
notes were  at  1,690  to  the  100  silver.  The 
only  recourse,  in  the  midst  of  new  necessities, 
seemed  to  be  to  issue  more  paper.  The  solemn 
promise  of  the  Emperor  in  the  patent  from 
whose  effects  the  country  was  still  smarting, 
and  on  which  the  virulence  of  popular  hate 
and  the  sharpness  of  popular  wit  had  been 
expended,  stood  in  the  way  of  any  such  issue. 
The  difficulty  was  obviated  by  giving  the  new 


AUSTRIAN  PAPER  MONEY.  317 

notes  a  new  name — "  anticipation-notes."  In 
the  decree  for  issuing  them  it  was  anxiously 
explained  that  they  were  only  exchequer  bills 
for  anticipating  the  revenue.  At  first,  45  mil- 
lions were  issued,  but  the  issues  were  secretly 
increased  to  426  millions.  In  18 16,  the  amount 
of  paper  money  was  over  638  millions,  and,  says 
the  historian  : 

Austria  offered  the  strange  spectacle  of  a  State  buried  in  the 
stillness  of  death — a  grotesque  conglomerate  of  States  of  dif- 
ferent sizes,  some  of  which  did  not  dare,  others  of  which  did 
not  know  how,  to  breathe  independently  and  freely.  .  .  . 
Undeniably,  the  paper  money  exercised  the  worst  influence  on 
the  morale  of  the  people.  Frugality  and  diligence  were  lost 
virtues.  Vulgar  pleasure-seeking  and  wild  extravagance  be- 
came habitual  even  in  the  lowest  classes.  Of  what  use  to 
care  for  the  future  ?  Why  not  enjoy  to-day  all  the  pleasures  of 
the  senses?  How  could  any  one  hesitate  to  pay  200  gulden 
for  admission  to  a  ball  ?  In  fact  the  "money"  had  no  value, 
and,  if  one  stood  reflecting,  he  might  lose  ball  and  money 
both.  The  very  fact  of  speaking  continually  of  large  sums, 
which,  however,  in  truth  amounted  to  but  very  small  value, 
stimulated  to  frivolity  and  folly.  So  the  ground  was  prepared 
for  developing  the  celebrated  "  Viennese"  disposition  ;  and  the 
loafer-life,  in  which  the  hot-spiced  pleasures  of  the  palate 
seemed  the  highest  good,  became  indigenous  to  "the  unique  city 
of  the  Emperor." 

In  1 8 16,  the  Austrian  National  Bank  was 
founded.  It  was  intended  to  draw  in  the  paper 
money,    both    as    subscription    to    capital,  and 


318  AUSTRIAN  PAPER  MONEY. 

through  the  agency  of  the  Bank  in  the  con- 
version of  treasury  notes.  Its  relation  to  the 
government,  which  deposited  50  millions  in  sil- 
ver to  begin  the  operation,  robbed  it  of  con- 
fidence at  the  outset.  It  bought  the  notes  at 
more  than  the  current  rate,  so  that  there 
was  a  profit  in  buying  them  on  the  Bourse 
and  taking  them  to  the  Bank.  A  run  ensued 
which  forced  almost  immediate  suspension. 
Loans  were  then  raised  for  redeeming  the 
notes,  and  the  mass  of  them  was  reduced  to 
181  millions. 

In  181 7,  the  Bank  shares  were  once  more 
offered,  and  with  better  success.  The  Bank 
went  into  operation  and  still  remains,  but 
government  guarantees  were  given  which  were 
burdensome  to  the  Treasury  and  robbed  the 
Bank  of  independence.  Its  operations  were 
mainly  transactions  with  the  government ;  its 
means  could  not  be  employed  in  furthering 
the  industry  of  the  country ;  and  to  this  day 
a  large  part  of  its  assets  consist  of  government 
obligations,  and  until  these  are  paid  its  use- 
fulness   is    crippled.     The  "  anticipation-notes  n 


A  USTRIAN  PAPER  MONE  Y.  319 

were  reduced  in  number  ;  their  value  improved, 
and  their  fluctuations  were  narrower.  In  1827, 
these  notes  were  reduced  to  ninety-nine  mil- 
lions, and  in  1840  to  ten  millions.  The  period 
of  peace  was  employed  in  this  effort,  and 
with  a  sound  industrial  system  and  no  deficit, 
an  equal  amount  of  energy  might  have  con- 
quered the  evil.  As  it  was,  however,  the 
notes  were  redeemed  by  loans,  the  deficit  was 
met  by  loans,  and  after  1830  Austria  en- 
tered on  a  ruinous  policy  of  armed  peace. 
The  relations  with  Hungary  were  bitterly 
hostile,  and  the  policy  of  repression  proved 
exceedingly  expensive.  New  loans  were  con- 
tinually required ;  the  energy  of  reform  died 
out ;  the  power  to  decide  on  a  policy  was 
wanting ;  the  dread  of  confession  and  of  self- 
denial  was  deep-seated ;  the  habit  of  putting 
off  and  of  seeking  temporary  makeshifts  was 
established. 

In  1848,  a  run  on  the  Bank,  at  the  out- 
break of  the  revolution,  reduced  the  coin  re- 
serve from  eighty-five  to  thirty-five  millions. 
Forced    circulation    was    given    to    the     bank 


320  AUSTRIAN  PAPER  MONEY. 

notes,  and  the  events  of  that  and  the  follow- 
ing years  had  the  good  result  of  rousing  the 
nation  from  its  stupor.  Baron  Von  Czoernig, 
chief  of  bureau  in  the  department  of  com- 
merce and  industry,  details  fully  the  measures 
taken  to  regenerate  the  nation.  Austria  was 
in  the  position  in  1850  in  which  Colbert  found 
France.  Efforts  were  made  to  reform  the  tax 
system,  and  important  changes  were  made 
in  the  right  direction,  The  currency  also  re- 
ceived attention,  but  the  history  consists  of 
little  more  than  a  record  of  changes  from 
one  form  of  paper  to  another.  The  deficit 
still  continued ;  the  expensive  repression  in 
Hungary  seemed  more  necessary  than  ever,  and 
the  Crimean  war  forced  Austria  once  more 
to  heavy  military  expenses.  The  war  of  1859 
in  Italy,  and  of  1866  with  Prussia,  produced 
new  emissions  of  paper,  and  Professor  Ber- 
gius,  of  Berlin,  quotes  the  Austrian  finance 
minister  as  saying,  in  1868,  that  if  new 
complications  should  arise  in  Europe  it  would 
be  necessary  to  issue  more  paper. 

After    1866,    however,    the    repressive   policy 


A  USTRIAN  PAPER  MONE  K  321 

in  Hungary  was  abandoned,  and  a  freer  in- 
dustrial system  was  adopted.  The  panic  of 
the  summer  of  1873  is  the  latest  incident  in  this 
miserable  story.  The  Journal  des  Econo- 
mistes  for  June  last  gave  the  following  ac- 
count and  explanation  of  it : 

The  financial  crisis  at  Vienna  was  not  simply  a  stock  ex- 
change crisis,  but  a  general  one,  an  effect  of  extravagance  in 
new  undertakings,  and  of  a  fever  of  speculation  which  took 
possession  of  all  classes  of  the  population. 

After  the  war  of  1866,  a  large  emission  of  paper  money  took 
place,  both  on  the  part  of  the  State  and  on  the  part 
of  the  Bank,  all  legal  tender.  The  abundance  of  paper 
led  to  a  belief  in  the  abundance  of  capital,  and  prompted  to 
undertakings  of  all  kinds.  These  influences  were  assisted  by 
the  abundance  of  the  harvests  of  1867  and  1868.  Urged  on 
by  the  opposition,  the  State  encouraged  by  guarantees  of  divi- 
dends the  construction  of  railroads  which  had  been  neglected 
during  the  war.  Speculation  also  seized  upon  credit  institu- 
tions of  various  kinds,  which  were  multiplied  in  all  the  great 
centres,  on  industrial  establishments,  on  constructions  in  the 
cities,  and  on  land.  Hence  ensued  a  great  quantity  of  bonds 
and  securities,  good  and  bad,  which  there  was  not  time  to  class- 
ify, and  which  produced  a  glut.  They  led  to  all  the  financial 
expedients  usual  in  such  cases,  advertisements,  reports,  emis- 
sions of  paper,  loans  of  all  forms,  tempting  the  prudence  of 
buyers  and  provoking  the  distrust  of  the  Bank  of  Vienna  and 
of  other  credit  establishments.  The  great  speculators,  finding 
their  means  surpassed,  suspended.  The  smaller  ones  imitated 
them.  Strong  houses  were  shaken,  and '  the  panic  followed. 
It  was  necessary  to  close  the  Bourse  for  a  day  to  prevent  vio- 
lence amongst  the  speculators.  There  were  great  calamities 
and  some  suicides. 


32 


AUSTRIAN  PAPER  MONEY. 


After  the  crisis  measures  were  taken  to  find  a  remedy.  The 
Chamber  of  Commerce,  the  directors  of  the  great  financial 
establishments,  the  municipality  of  Vienna,  etc.,  called  on  the 
government,  which,  of  course,  could  do  nothing,  By  permit- 
ting the  Bank  to  raise  its  emissions  to  500  millions  it  put  the 
same  in  a  position  to  discount  and  to  make  advances  on  na- 
tional securities.  Fusions  and  combinations  and  guarantees  are 
being  planned.  The  most  important  relief,  however,  is  given 
by  the  purchases  of  good  securities,  which  the  low  prices  in- 
duce. As  for  bad  securities,  they  disappear  in  the  general 
clearing  up.     Thus  end  all  crises — offspring  of  delusion. 

An  able  writer  in  the  same  journal  for  Septem- 
ber gives  as  the  circulation  on  the  30th  of  June, 
1^73y  380  millions  of  treasury  notes  and  340 
millions  of  bank-notes.  The  Bank  holds  144 
millions  in  specie,  "  enough  to  bring  its  notes 
to  par  if  it  were  not  for  the  treasury  notes  and 
the  debt  of  the  State  to  the  Bank,  part  of  which 
cannot  be  realized."  In  commenting  on  the 
character  of  the  city  of  Vienna,  outwardly  gran- 
diose and  pretentious,  but  badly  drained  and 
otherwise  provided,  and  upon  the  light?  and 
frivolous  character  of  the  people,  the  same 
writer  refers  these  phenomena  to  the  financial 
disorder  and  paper  money  as  chief  causes. 

No  one  can  deny  that  the  above  is  a  most 
instructive  study  in  political  and  financial  disease. 


A  USTRIAN  PAPER  MONE  Y.  323 

The  popular  mind  rests  on  instances  like  the 
French  assignats,  or  our  continental  money,  as 
showing  the  error  of  paper  money  where  it 
absolutely  perishes.  It  is  thought  that  short 
of  this,  only  alarmists  see  danger.  The  story 
of  Austria  shows  that  an  irredeemable  paper 
currency  is  a  national  calamity  of  the  first  mag- 
nitude, of  which  one  may  indeed  find  greater 
or  less  examples,  but  of  which  the  least  is  a 
peremptory  warning  to  statesmen  and  financiers. 
It  is  like  a  disease  in  the  blood,  undermining 
the  constitution  and  spreading  decay  through 
all  the  arteries  of  business.  A  young  and  vigor- 
ous nation,  with  a  sound  political  system,  may 
stand  it  far  better  than  an  old  one,  with  feudal 
traditions  ;  but  in  its  measure  and  according  to 
circumstances  it  is  pernicious,  if  not  fatal.  It 
is  not  like  an  acute  disease  ;  it  is  like  an  in- 
valid state  with  occasional  fever. 

We  may  also  infer  from  Austrian  experience 
what  the  "  London  Economist"  recently  in- 
ferred from  ours,  that  the  interference  of  gov- 
ernment with  banking  is  as  mischievous  as  its 
interference   with  any    other   trade.      The   Em- 


324  AUSTRIAN  PAPER   MONEY. 

peror  .of  Austria  was  not  intentionally  a  liar. 
When  he  said  he  would  issue  so  much  and 
no  more,  he  meant  it.  He  only  did  not  know 
that  he  was  releasing  a  power  which  he  could 
not  curb  again.  He  was  promising  to  perform 
a  financial  miracle.  His  broken  promises,  how- 
ever, cost  him  and  his  government  all  credit 
with  his  people,  and  it  is  now  frequent  subject 
of  remark  in  Austria  that  the  more  solemn  the 
asseverations  of  the  government  the  more  ludic- 
rous they  appear  to  the  people.  A  govern- 
ment which  interferes  with  banking  exposes 
itself  to  great  danger  of  error,  and  such  errors 
cost  it  popular  confidence  sooner  than  any 
others. 


CONCLUSION. 

FF  these  chapters  of  history  have  been  narrated 
with  any  success,  they  carry  their  own  lesson 
with  them.  There  are  many  who  sneer  at  history 
and  foreign  experience  as  inapplicable  to  our  cir- 
cumstances, and  toss  off  the  lessons  of  history  with 
impatient  contempt,  but  these  very  persons  never 
talk  on  financial  topics  for  five  minutes  without 
referring  to  what  "  the  Bank  of  England  does," 
or  what  "  England  did  "  during  the  Bank  Restric- 
tion. The  only  remarkable  fact  about  their  ref- 
erences is  that  the  facts  are  often  incorrectly 
stated,  and  the  inferences  illogically  and  unscien- 
tifically drawn.  From  this  it  appears  that  they 
object,  not  to  the  force  of  historical  arguments, 
but  to  the  trouble  of  correctly  informing  them- 
selves about  historical  facts. 

There  are  very  many,  however,  who  are  will- 
ing to  learn  from  history  and  science,  and  are  led 
astray  by  the  sweeping  assertions,  incorrect  refer- 
ences, and  dogmatism  of  those  they  are  obliged 


326  CONCLUSION. 

to  trust.  It  is  for  these  that  these  chapters  have 
been  written. 

It  will  be  observed,  then,  that  there  is  nothing 
new  to  be  discovered  about  the  operation  of  paper 
money.  There  is  no  new  invention  possible 
for  making  it  "as  good  as  gold,"  no  new  device 
conceivable  for  making  it  elastic,  no  difficulty  con- 
nected with  it  which  has  not  been  experienced, 
no  phenomenon  of  its  development  for  which  we 
have  not  abundant  analogies.  If  any  qualifica- 
tion of  these  assertions  is  necessary,  it  is  only 
this,  that  no  scheme  of  intro-convertible  bonds 
for  giving  elasticity  to  a  currency  of  fixed  amount 
has  ever  been  tried,  or,  so  far  as  I  know,  proposed. 
This  scheme  is  the  only  one  which  fully  illustrates 
what  is  derisively  called  "  theory,"  for  it  stands 
on  no  facts,  appeals  to  no  experience,  is  deduced 
from  no  observation,  but  is  purely  imaginary  and 
speculative.  It  has  a  certain  plausibility,  but  all 
the  observed  phenomena  of  paper  money  go  to 
show  that  it  would  make  the  paper  elastic  only  in 
one  direction. 

For  a  nation  which  has  fallen  into  this  mistake, 
there  are  only  three  courses  of  action  which  are 


CONCLUSION.  327 

even  logically  conceivable :  to  go  on,  to  turn  back, 
to  stand  still.  The  last  is  the  "  growing  up " 
idea,  and  may  be  ruled  out  at  once  as  impractica- 
ble. To  try  to  stand  still  will  inevitably  end 
in  drifting  onwards  into  inflation.  It  will  be 
much  gained,  therefore,  if  we  come  to  face  the 
situation  as  a  grim  alternative,  for  such  is  its 
actual  character. 

To  go  on  to  further  inflation,  whether  by  free 
banking,  intro-convertible  bonds,  or  direct  issues, 
means  simply  bankruptcy  and  repudiation.  Each 
new  issue  will  produce,  only  for  a  time,  ease  and 
apparent  prosperity,  to  be  followed  in  a  few  years 
by  a  new  crisis  and  new  distress,  then  a  new 
issue,  and  so  on  over  again.  Reform  will  then  be 
no  longer  possible,  and  we  must  run  the  course  to 
its  end,  in  which  the  paper  disappears  as  igno- 
miniously  as  the  continental  notes. 

If  we  choose  the  other  alternative,  it  is  useless  to 
try  to  deceive  ourselves  at  all  in  regard  to  what  it 
involves.  To  talk  of  resumption  and  of  issuing 
the  44  millions,  or  of  establishing  free  banking  on 
5-2o's,  in  the  same  breath,  is  a  contradiction. 
If  we  want  specie  payments,  we  must  have  specie, 


328  CONCLUSION. 

and,  if  we  want  specie,  the  entire  history  before 
us  repeats  to  weariness  that  we  must  get  the 
paper  out  of  the  way.  This  is  the  first  condition, 
and,  until  we  are  willing  to  face  it,  it  is  useless  to 
discuss  resumption  at  all.  The  doctrines  drawn 
from  the  previous  chapters  are  not  doctrines  of 
financial  science  so  much  as  stumbling-blocks 
which  lie  at  the  door  of  that  science.  We  have 
seen  by  abundant  evidence,  that  the  movement  of 
the  precious  metals  from  country  to  country  is  not 
governed  by  the  balance  of  trade,  as  is  assumed 
in  nearly  all  discussions  of  this  subject.  An  econ- 
omist of  to-day  who  makes  an  assault  on  the 
"balance  of  trade"  feels  as  if  he  were  taking"  a 
sledge-hammer  to  break  through  an  open  door ; 
but  this  doctrine  is  made  the  starting-point  of 
discussing  our  finances  in  public  documents,  in 
speeches  in  Congress,  and  in  most  of  the  pam- 
phlets and  newspaper  articles  one  meets  with. 
We  have  seen,  however,  that  the  transaction  is 
not  one  to  which  the  term  balance  properly  applies. 
Whenever  a  nation  has  complained  that  an  ad- 
verse balance  of  trade  was  drawing  off  its  specie, 
we  have  seen  that  an  inferior  currency  of  some 


CONCLUSION. 


329 


kind  was  displacing  the  better  one,  and  that  the 
increased  imports  of  merchandise  were  only  the 
return  payments  for  the  gold  or  silver  which  had 
been  dispensed  with  by  employing  a  cheaper 
medium.  We  have  seen  also  that  prices  alone 
govern  the  flow  of  the  precious  metal,  or,  more 
strictly  stated,  that  the  movement  of  the  metals 
and  the  prices  of  commodities  in  different  coun- 
tries act  and  react  upon  one  another  in  such  a 
way  as  to  keep  up  the  exact  natural  relation  of 
prices  between  different  countries,  and  give  to 
each  country  in  the  world's  market  its  full  relative 
advantage  in  production.  If,  therefore,  a  nation 
had  a  specie  currency,  a  drain  upon  it  by  an  ad- 
verse balance  of  trade,  a  foreign  payment,  or  any 
other  similar  cause,  would  immediately  produce  a 
lowering  of  prices  and  a  return  current  of  specie 
until  the  natural  level  was  once  more  restored. 
We  have  also  seen  that  it  is  an  error  to  say  that 
there  is  not  enough  gold  and  silver  in  the  world 
to  perform  the  exchanges.  Whatever  gold  there 
is,  is  enough.  The  only  difference  would  be 
whether  one  grain  of  gold  would  buy  one  thou- 
sand grains  of  wheat  or  one  hundred  thousand. 


330  CONCLUSION. 

We  have  also  seen  that  the  metals  will  distribute 
themselves  amongst  the  nations  in  exact  propor- 
tion to  their  requirements,  if  there  is  no  interfer- 
ence in  the»shape  of  inferior  currency.  If  a  vac- 
uum is  left  by  the  destruction  of  paper,  specie 
comes  in  to  take  its  place,  as  occurred  here  after 
the  revolutionary  war  and  after  the  bank  crash  of 
1839.  It  may  have  to  be  bought  back,  however, 
very  dear  ;  that  is,  by  giving  many  goods  for  it, 
or  what  is  the  same  thing,  goods  at  low  prices. 
If  the  requirement  rises  above  the  supply,  specie 
flows  in  to  fill  the  gap,  as  we  see  after  every  com- 
mercial crisis. 

These  principles  govern  the  question  of  re- 
sumption. If  we  want  the  specie,  we  here  see 
how  we  must  go  to  work  to  get  it.  It  is  not 
possible,  save  by  withdrawing  a  portion  of  the 
paper.  When  we  suspended,  we  overissued. 
The  consequence  was  a  rise  of  prices,  increase 
of  speculation,  and  export  of  specie.  Large  im- 
portations of  merchandise  followed,  and  exporta- 
tion was  loaded  with  disadvantages.  The  course 
of  resumption  is  the  opposite  in  every  particular. 
When  the  paper  is  withdrawn,  prices  fall,  specu- 


CONCLUSION.  331 

lation  is  restrained,  specie  flows  in.  Importa- 
tions are  discouraged,  exportations  increase  and 
go  to  pay  for  the  gold.  It  may  be  added  that, 
as  the  former  process  was  smooth  and  agreeable, 
so  the  latter  is  hard  and  distressing.  When 
the  specie  is  given  up,  large  quantities  of  it,  com- 
paratively, are  given  for  little  merchandise ; 
when  it  is  sought  again,  it  must  be  bought  at  a 
disadvantage. 

No  nation  has  ever  had  the  courage  to  pursue 
this  course  except  England,  and  she  only  entered 
upon  it  after  two  or  three  commerical  revulsions 
had  destroyed  a  large  part  of  the  paper,  never 
immoderately  redundant ;  she  entered  upon  the 
effort  under  the  guidance  of  a  high  order  of 
statesmanship  ;  she  took  advantage  of  the  fall  in 
prices  and  business  stagnation  following  a  crisis  ; 
and  her  resumption  was  not  complete  until  after 
the  withdrawal  of  the  small  notes  in  1829. 
Other  nations,  like  Austria  and  Russia,  have 
gone  on  for  generations,  sinking  deeper  and 
deeper,  crippled  in  their  military  and  industrial 
strength  by  this  inheritance,  not  knowing  how  to 
endure  it  or  how  to  get  rid  of  it,  or,  like  France 


332  CONCLUSION. 

and  our  own  colonies,  have  gone  through  bank- 
ruptcy and  repudiation.  These  are  the  alterna- 
tives, and  it  has  been  well  likened  to  the  choice 
of  a  man  in  a  house  on  fire  who  jumps  out  of  the 
second  story  rather  than  wait  to  be  driven  up  to 
the  third  or  fourth  or  the  roof. 

If  the  withdrawal  of  the  paper  should  be  re- 
solved upon,  the  best  way  to  accomplish  it  is  the 
one  which  is  simplest  and  most  straightforward; 
that  is,  to  raise  a  surplus  revenue  and  with  it 
cancel  the  government  issues,  It  is  not  consist- 
ent with  the  present  purpose  to  criticise  the 
various  schemes  which  have  been  proposed. 
They  all  involve  some  kind  of  conversion  of  one 
sort  of  paper  into  another,  and  every  such 
change  complicates  a  system  already  far  too  in- 
tricate, and  every  such  change  involves  chances 
of  unforeseen  events,  or  of  unexpected  effects, 
for  they  consist  of  experiments  on  totally  untried 
ground.  Some  of  these  schemes  involve  no  ac- 
tual reduction  of  the  outstanding  paper,  and  can 
lead  to  nothing  but  expense  and  injury  to  the  pub- 
lic credit.  Others  do  involve  a  diminution  of  the 
paper  and  seek  to  accomplish  it  without  the  dis- 


CONCLUSION.  ^ZZ 

tress  which  it  must  occasion.  It  is  certainly  most 
desirable  that  any  possible  application  of  science 
to  this  end  should  be  invented,  but  all  such  plans 
involve  the  danger  of  political  events  during  the 
next  five  or  six  years,  which  cannot  now  be  fore- 
seen, and  they  assume  also  that  the  scheme  will 
be  faithfully  carried  out  whenever  it  begins  to 
press  hard,  as  at  some  time  it  certainly  must. 
Past  experience  leads  us  to  doubt  whether  this 
latter  assumption  would  be  justified  by  the  event. 
Our  object  here,  however,  is  simply  to  establish 
by  history  and  science,  what  are  the  indispensable 
conditions  of  resumption,  and  to  place  the  prob- 
lem in  such  light  that  it  may  be  perceived  how  it 
must  be  attacked,  if  it  is  to  be  solved  at  all. 


APPENDlS£1VlfiBSITVO 
I    CALIFORNIA. 

REPORT    FROM    THE    SELECT    COMMITTEE    OM    THE 
HIGH    PRICE    OF    GOLD    BULLION. 

Ordered,  by  the  House  of  Commonst  to  be  printed,  8  June,   1S10. 

The  Select  Committee  appointed  to  enquire  into  the  cause 
of  the  High  Price  of  Gold  Bullion,  and  to  take  into  consid- 
eration the  state  of  the  Circulating  Medium,  and  of  the  Ex- 
changes between  Great  Britain  and  Foreign  Parts ; — and  to 
report  the  same,  with  their  Observations  thereupon,  from 
time  to  time,  to  the  House ; — Have,  pursuant  to.  the  Orders 
of  the  House,  examined  the  matters  to  them  referred ;  and 
have  agreed  to  the  following  Report  : 

Your  Committee  proceeded,  in  the  first  instance,  to  ascertain 
what  the  price  of  gold  bullion  had  been,  as  well  as  the  rates 
of  the  foreign  exchanges,  for  some  time  past ;  particularly 
during  the  last  year. 

Your  Committee  have  found  that  the  price  of  gold  bullion, 
which,  by  the  regulations  of  his  Majesty's  Mint,  is  3/.  \*js.  \ohi. 
per  ounce  of  standard  fineness,  was,  during  the  years  1806, 
1807,  and  1808,  as  high  as  4/.  in  the  market.  Towards  the 
end  of  1808  it  began  to  advance  very  rapidly,  and  continued 
very  high  during  the  whole  year  1809;  the  market  price  of 
standard  gold  in  bars  fluctuating  from  4/.  gs.  to  4/.  12s.  per  oz. 
The  market  price  at  4/.  iar.  is  about  15^  per  cent,  above  the 
Mint  price. 

Your  Committee  have  found,  that  during  the  three  first  months 
of  the  present  year,  the  price  of  standard  gold  in  bars  remained 
nearly  at  the  same  price  as  during  last  year;  viz.,  from  4/*  10s. 
to  4/.  12s.  per  oz.  In  the  course  of  the  months  of  March  and 
April,  the  price  of  standard  gold  is  quoted  but  once  in  Wetten- 
hall's  tables;  viz.,  on  the  6th  of  April  last,  at  4/.  6s.  which  is 
rather  more  than  10  per  cent,  above  the  Mint  price.  The  last 
quotations  of  the  price  of  gold,  which  have  been  given  in  those 
tables,  are  upon  the  18th  and  2 2d  of  May,  when  Portugal  gold 
in  coin  is  quoted  at  4/.  lis.  per  oz.  :  Portugal  gold  coin  is  about 
the  same  fineness  as  our  standard.  It  is  stated  in  the  same 
tables,  that  in  the  month  of  March  last,  the  price  of  new  doub- 
loons rose  from  4/.  7^.  to  4/.  9.$-.  per  oz.     Spanish  gold  is  from 


//iV?^?. 


33S  APPENDIX. 

4\  to  4f  grains  better  than  standard,  making  about  4s.  per  oz. 
difference  in  value. 

It  appears  by  the  evidence,  that  the  price  of  foreign  gold 
-coin  is  generally  higher  than  that  of  bar  gold,  on  account  of 
the  former  finding  a  more  ready  vent  in  foreign  markets.  The 
difference  between  Spanish  and  Portugal  gold  in  coin  and  gold 
in  bars,  has  of  late  been  about  2s.  per  ounce.  Your  Committee 
have  also  to  state,  that  there  is  said  to  be  at  present  a  differ- 
ence of  between  3s.  and  4s.  per  ounce  between  the  price  of 
bar  gold  which  may  be  sworn  off  for  exportation  as  being 
foreign  gold,  and  the  price  of  such  bar  gold  as  the  dealer  will 
not  venture  to  swear  off:  while  the  former  was  about  4/.  10s. 
in  the  market,  the  latter  is  said  to  have  been  about  4/.  6s.  On 
account  of  these  extrinsic  differences,  occasioned  either  by  the 
expense  of  coinage,  or  by  the  obstructions  of  law,  the  price  of 
standard  gold  in  bars,  such  as  may  be  exported,  is  that  which 
''it  is  most  material  to  keep  generally  in  view  through  the  pres- 
ent inquiry. 

It  appeared  to  your  Committee,  that  it  might  be  of  use,  in 
judging  of  the  cause  of  this  high  price  of  gold  bullion,  to  be 
informed  also  of  the  prices  of  silver  during  the  same  period. 
The  price  of  standard  silver  in  his  Majesty's  Mint  is  5s.  2d.  per 
ounce  ;  at  this  standard  price,  the  value  of  a  Spanish  dollar  is 
4s.  4d.  or,  which  comes  to  the  same  thing,  Spanish  dollars  are, 
at  that  standard  price,  worth  4.$-,  \\\d.  per  ounce.  It  is  stated 
in  Wetten hall's  tables  that  throughout  the  year  1809,  the  price 
of  new  dollars  fluctuated  from  $s.  $d.  to  $s.  yd.  per  ounce,  or 
from  10  to  13  per  cent,  above  the  Mint  price  of  standard  sil- 
ver. In  the  course  of  the  last  month,  new  dollars  have  been 
[quoted  as  high  as  5s.  Sd.  per  ounce,  or  more  than  15  per  cent. 
I  above  the  Mint  price. 

Your  Committee  have'  likewise  found,  that  towards  the  end 
of  the  year  1808,  the  Exchanges  with  the  continent  became 
very  unfavourable  to  this  country,  and  continued  still  more  un- 
favourable through  the  whole  of  1809,  and  the  three  first  months 
of  the  present  year. 

Hamburgh,  Amsterdam,  and  Paris,  are  the  principal  places 
with  which  the  Exchanges  are  established  at  present.  During 
the  last  six  months  of  1809,  and  the  first  three  months  of  the 
present  year,  the  Exchanges  on  Hamburgh  and  Amsterdam 
were  depressed  as  low  as  from  16  to  20  per  cent,  below  par; 
and  that  on  Paris  still  lower.  The  exchanges  with  Portugal 
have  corresponded  with  the  others  ;  but  they  are  complicated 
by  some  circumstances  which  shall  be  explained  separately. 


THE  BULLION  REPORT: 


337 


Your  Committee  find,  that  in  the  course  of  the  month  of 
March  last,  that  is,  from  the  2d  of  March  to  the  3d  of  April, 
the  exchanges  with. the  three  places  above  mentioned  received 
a  gradual  improvement.  The  exchange  with  Hamburgh  rose 
gradually  from  29.  4.  to  31.  ;  that  with  Amsterdam  from  31.  8. 
to  33-  5-  >  tnat  w'ta  Paris  from  19.  16.  to  21."  11.  Since  the 
3d  April  last  to  the  present  time,  they  have  remained  nearly 
stationary  at  those  rates,  the  exchange  with  Hamburgh,  as 
stated  in  the  tables  printed  for  the  use  of  the  merchants,  ap- 
pearing as  much  against  this  country  as  9/.  percent,  below  par'; 
that  with  Amsterdam  appearing  to  be  more  than  7/.  per  cent, 
below  par ;  and  that  with  Paris  more  than  14/.  per  cent,  below 
par. 

So  extraordinary  a  rise  in  the  market  price  of  gold  in  this 
country,  coupled  with  so  remarkable  a  depression  of  our  ex- 
changes with  the  continent,  very  early,  in  the  judgment  of  your 
Committee,  pointed  to  something  in  the  state  of  our  own  do-  c 
mestic  currency  as  the  cause  of  both  appearances.  But  before 
they  adopted  that  conclusion,  which  seemed  agreeable  to  all 
former  reasonings  and  experience,  they  thought  it  proper  to  en- 
quire more  particularly  into  the  circumstances  connected  with 
each  of  those  two  facts  ;  and  to  hear,  from  persons  of  commer- 
cial practice  and  detail,  what  explanations  they  had  to  offer  of 
so  unusual  a  state  of  things. 

With  this  view,  your  Committee  called  before  them  several 
merchants  of  extensive  dealings  and  intelligence,  and  desired 
to  have  their  opinions,  with  respect  to  the  cause  of  the  high 
price  of  gold  and  the  low  rates  of  exchange.* 


I. 

It  will  be  found  by  the  evidence,  that  the  high  price  of  gold 
is  ascribed,  by  most  of  the  witnesses,  entirely  to  an  alleged 
scarcity  of  that  article,  arising  out  of  an  unusual  demand  for  it 
upon  the  continent  of  Europe.  This  unusual  demand  for  gold 
upon  the  continent  is  described  by  some  of  them  as  being 
chiefly  for  the  use  of  the  French  armies,  though  increased  also 
by  that  state  of  alarm,  and  failure  of  conlidence,  which  leads  to 
the  practice  of  hoarding. 

Your  Committee  are  of  opinion,  that,  in  the  sound  and  nat- 
ural state  of  the  British  currency,  the  foundation  of  which  is 
gold,   no  increased  demand  for  gold  from  other  parts  of  the 

♦See  note  on  page  267. 
15 


33%  APPENDIX. 

world,  however  great,  or  from  whatever  cans  s arising,  can  have 
the  effect  of  producing  here,  for  a  considerable  period  of  time, 
a  material  rise  in  the  market  price  of  gold.  But  before  they 
proceed  to  explain  the  grounds  of  that  general  opinion,  they 
wish  to  state  some  other  reasons  which  alone  would  have  led 
them  to  doubt  whether  in  point  of  fact,  such  a  demand  for  gold, 
as  is  alleged,  has  operated  in  the  manner  supposed. 

If  there  were  an  unusual  demand  for  gold  upon  the  conti- 
nent, such  as  could  influence  its  market  price  in  this  country, 
it  would  of  course  influence  also,  and  indeed  in  the  first  instance, 
i:s  price  in  the  continental  markets  ;  and  it  was  to  be  expected 
that  those  who  ascribed  the  high  price  here  to  a  great  demand 
abroad,  would  have  been  prepared  to  state  that  there  was  a 
corresponding  high  price  abroad.  Your  Committee  did  not 
find  that  they  grounded  their  inference  upon  any  such  informa- 
tion ;  and  so  far  as  your  Committee  have  been  enabled  to  as- 
certain, it  does  not  appear  that  during  the  period  when  the 
price  of  gold  bullion  was  rising  here,  as  valued  in  our  paper, 
there  was  any  corresponding  rise  in' the  price  of  gold  bullion  in 
the  market  of  the  continent,  as  valued  in  their  respective  cur- 
rencies. Mr.  Whitmore,  indeed,  the  late  governor  of  the  bank, 
stated,  that  in  his  opinion  it  was  the  high  price  abroad  which 
had  carried  our  gold  coin  out  of  this  country  ;  but  he  did  not 
offer  to  your  Committee  any  proof  of  this  high  price.  Mr. 
Greffulhe,  a  continental  merchant,  who  appeared  to  be  remark- 
ably well  informed  in  the  details  of  trade,  being  asked  by  the 
Committee,  if  he  could  state  whether  any  change  had  taker 
place  in  the  price  of  gold  in  any  of  the  foreign  markets  within 
the  last  year  ?  answered,  "  No  very  material  change  that  I  am 
aware  of."  Upon  a  subsequent  day,  having  had  time  to  refer 
to  the  actual  prices,  he  again  stated  to  the  Committee,  "  I  beg 
leave  to  observe,  that  there  has  been  no  alteration  of  late  in 
the  Mint  price  of  gold  in  foreign  places,  nor  have  the  market 
prices  experienced  an  advance  at  all  relative  to  the  rise  that  has 
taken  place  in  England  ;  one  of  the  papers  I  have  delivered 
shews  the  foreign  prices  reduced  into  sterling  money  at  the 
present  low  rates  of  exchange,  and  the  excess  above  our  mar- 
ket price  may  be  considered  as  about  equal  to  the  charges 
of  conveyance."  The  paper  he  refers  to  will  be  found  in  the 
Appendix;  and  this  statement  made  by  Mr.  Grefiiilhe  throws 
great  light  upon  this  part  of  the  subject;  as  it  shews,  that  the 
actual  prices  of  gold  in  the  foreign  markets  are  just  so  much 
lower  than  its  market  price  here,  as  the  difference  of  exchange 
amounts  to.     Mr.   Greffulhe's  paper  is  confirmed  by  another, 


THE  BULLION  REPORT." 


339 


which  has  been  laid  before  your  Committee.  Mr.  Abraham 
Goldsmid  has  also  stated  to  your  Committee,  that  during  that 
part  of  last  year  when  the  market  price  of  gold  here  rose  so 
high,  its  price  at  Hamburgh  did  not  fluctuate  more  than  from 
3  to  4  per  cent. 

Here  your  Committee  must  observe,  that  both  at  Hamburgh 
and  Amsterdam,  where  the  measure  of  value  is  not  gold  as  in 
this  country,  but  silver,  an  unusual  demand  for  gold  would  affect 
its  money  price,  that  is,  its  price  in  silver;  and  that  as  it  does 
not  appear  that  there  has  been  any  considerable  rise  in  the  price 
of  gold,  as  valued  in  silver,  at  those  places  in  the  last  year,  the 
inference  is,  that  there  was  not  any  considerable  increase  in  the 
demand  for  gold.  That  permanent  rise  in  the  market  price  of 
gold  above  its  Mint  price,  which  appears  by  Mr.  Greffulhe's 
paper  to  have  taken  place  for  several  years  both  at  Hamburgh 
and  Amsterdam,  may  in  some  degree  be  ascribed,  as  your  Com- 
mittee conceive,  to  an  alteration  which  has  taken  place  in  the 
relative  value  of  the  two  precious  metals  all  over  the  world  ; 
concerning  which,  much'  curious  and  satisfactory  evidence  will 
be  found  in  the  Appendix,  particularly  in  the  documents  laid 
before  your  Committee  by  Mr.  Allen.  From  the  same  cause, 
a  fall  in  the  relative  price  of  silver  appears  to  have  taken 
place  in  this  country  for  some  time  before  the  increase  of  our 
paper  currency  began  to  operate.  Silver  having  fallen  in  rela- 
tive value  to  gold  throughout  the  world,  gold  has  appeared  to 
rise  in  price  in  those  markets  where  silver  is  the  fixed  measure, 
and  silver  has  appeared  to  fall  in  those  where  gold  is  the  fixed 
measure. 

With  respect  to  the  alleged  demand  for  gold  upon  the  con- 
tinent for  the  supply  of  the  French  armies,  your  Committee 
must  further  observe,  that,  if  the  wants  of  the  military  chest 
have  been  latterly  much  increased,  the  general  supply  of  Eu- 
rope with  gold  has  been  augmented  by  all  that  quantity  which 
thrs  great  commercial  country  has  spared  in  consequence  of 
the  substitution  of  another  medium  of  circulation.  And  your 
Committee  cannot  omit  remarking,  that  though  the  circum- 
stances which  might  occasion  such  an  increased  demand  may 
recently  have  existed  in  greater  force  than  at  former  periods, 
yet  in  the  former  wars  and  convulsions  of  the  continent,  they 
must  have  existed  in  such  a  degree  as  to  produce  some  effect. 
Sir  Francis  Baring  has  very  justly  referred  to  the  seven  years' 
Avar  and  to  the  American  war,  and  remarks,  that  no  want  of 
bullion  was  then  felt  in  this  country.  And  upon  referring  for  a 
course  of  years  to  the  tables  which  are  published  for  the  use  of 


,f\>     OF  THE 

340  APPENDIX.  UNWEPT 

the  merchants,  such  as  Lloyd's  lists  and  Wettenhall's  Course  of 
Exchange,  your  Committee  have  found  that  from  the  middle  of 
the  year  1773,  when  the  reformation  of  the  gold  coin  took 
place,  till  about  the  middle  of  the  year  1799,  two  years  after 
the  suspension  of  the  cash  payments  of  the  Bank,  the  market- 
price  of  standard  gold  in  bars  remained  steadily  uniform  at  the 
price  of  3/.  17X.  dd.  [being,  with  the  small  allowance  for  loss  by, 
detention  at  the  Mint,  equal  to  the  Mint  price  of  3/.  175-.  id^/.j 
with  the  exception  of  one  year,  from  May,  1783,  to  May,  1784, 
when  it  was  occasionally  3/.  iSs.  During  the  same  period  it  is 
to  be  noticed,  the  price  of  Portugal  gold  coin  was  occasionally 
as  high  as  4/.  2s.  ;  and  your  Committee  also  observe,  that  it  was 
stated  to  the  Lords'  Committee  in  1797  by  Mr.  Abraham  New- 
land,  that  the  bank  had  been  frequently  obliged  to  buy  gold 
higher  than  the  Mint  price,  and  upon  one  particular  occasion 
gave  as  much  for  a  small  quantity,  which  their  agent  procured 
from  Portugal,  as  4/.  8s.  But  your  Committee  find,  that  the 
price  of  standard  gold  in  bars  was  never  for  any  length  of  time 
materially  above  the  Mint  price,  during  the  whole  period  of  24 
years  which  elapsed  from  the  reformation  of  the  gold  coin  to 
the  suspension  of  the  cash  payments  of  the  Bank.  The  two 
most  remarkable  periods  prior  to  the  present,  when  the  market 
price  of  gold  in  this  country  has  exceeded  our  Mint  price,  were 
in  the  reign  of  King  William,  when  the  silver  coin  was  very 
much  worn  below  its  standard,  and  in  the  early  part  of  his 
present  Majesty's  reign,  when  the  gold  coin  was  very  much 
worn  below  its  standard.  In  both  those  periods,  the  excess  of 
the  market  price  of  gold  above  its  Mint  price  was  found  to  be 
owing  to  the  bad  state  of  the  currency  ;  and  in  both  instances, 
the  reformation  of  the  currency  effectually  lowered  the  market 
price  of  gold  to  the  level  of  the  Mint  price.  During  the  whole 
of  the  years  1796  and  1797,  in  which  there  was  such  a  scarcity 
of  gold,  occasioned  by  the  great  demands  of  the  country  bank- 
ers in  order  to  increase  their  deposits,  the  market  price  of  gold 
never  rose  above  the  Mint  price. 

Your  Committee  have  still  further  to  remark  upon  this  point, 
that  the  evidence  laid  before  them  has  led  them  to  entertain 
much  doubt  of  the  alleged  fact,  that  a  scarcity  of  gold  bullion 
has  been  recently  experienced  in  this  country.  That  guineas 
have  disappeared  from  the  circulation,  there  can  be  no  ques- 
tion ;  but  that  does  not  prove  a  scarcity  of  bullion,  any  more 
than  the  high  price  proves  that  scarcity.  If  gold  is  rendered 
dear  by  any  other  cause  than  scarcity,  those  who  cannot  pur- 
chase it  without  paying  the  high  price,  will  be  very  apt  to  com 


THE  BULLION  REPORT." 


341 


elude  that  it  is  scarce.  A  very  extensive  home  dealer  who  was 
examined,  and  who  spoke  very  much  of  the  scarcity  of  gold, 
acknowledged,  that  he  found  no  difficulty  in  getting  any  quan- 
tity he  wanted,  if  he  was  willing  to  pay  the  price  for  it.  And 
it  appears  to  your  Committee,  that,  though  in  the  course  of  the 
List  year  there  have  been  large  exportationsof  gold  to  the  con- 
tinent, there  have  been  also  very  considerable  importations  of 
it  into  this  country  from  South  America,  chiefly  through  the 
West  Indies.  The  changes  which  have  affected  Spain  and  Por- 
tugal, combined  with  our  maritime  and  commercial  advantages, 
would  seem  to  have  rendered  this  country  a  channel  through 
which  the  produce  of  the  mines  of  New  Spain  and  the  Brazils 
pass  to  the  rest  of  the  world.  In  such  a  situation,  the  imports 
of  bullion  and  coin  give  us  the  opportunity  of  first  supplying 
ourselves  ;  and  must  render  this  the  last  of  the  great  markets 
in  which  a  scarcity  of  that  article  will  be  felt.  This  is  remark- 
ably illustrated  by  the  fact,  that  Portugal  gold  coin  is  now  sent 
regularly  from  this  country  to  the  cotton  settlements  in  the 
Brazils,  Pernambuco,  and  Maranham,  while  dollars  are  remitted 
in  considerable  quantities  to  this  country  from  Rio  Janeiro. 

It  is  important  also  to  observe,  that  the  rise  in  the  market 
price  of  silver  in  this  country,  which  has  nearly  corresponded  to 
that  of  the  market  price  of  gold,  cannot  in  any  degree  be  as- 
cribed to  a  scarcity  of  silver.  The  importations  of  silver  have 
of  late  years  been  unusually  large,  while  the  usual  drain  for  In- 
dia and  China  has  been  stopped. 

For  all  these  reasons,  your  Committee  would  be  inclined  to 
think,  that  those  who  ascribe  the  high  price  of  gold  to  an  un- 
usual demand  for  that  article,  and  a  consequent  scarcity,  assume 
facts  as  certain  of  which  there  is  no  evidence.  But  even  if  these 
assumptions  were  proved,  to  ascribe  the  high  price  of  gold  in 
this  country  to  its  scarcity,  seems  to  your  Committee  to  involve 
a  misconception,  which  they  think  it  important  to  explain. 

In  this  country,  gold  is  itself  the  measure  of  all  exchange 
able  value,  the  scale  to  which  all  money  prices  are  referred. 
It  is  so,  not  only  by  the  usage  and  commercial  habits  of  the 
country,  but  likewise  by  operation  of  law,  ever  since  the 
act  of  the  14th  of  his  present  Majesty  [finally  rendered  perpet- 
ual by  an  act  of  the  39th  year  of  the  reign]  disallowed  a  legal 
tender  in  silver  coin  beyond  the  sum  of  25/.  Gold  being  thr.s 
our  measure:  of  prices,  a  commodity  is  said  to  be  dear  or  cheap 
according  as  more  or  less  gold  is  given  in  exchange  for  a  given 
quantity  of  that  commodity ;  but  a  given  quantity  of  gold  it- 
self will  never  be  exchanged  for  a  greater  or  a  less  quantity  of 


342 


APPENDIX. 


gold  of  the  same  standard  fineness.  At  particular  times  it  may 
be  convenient  in  exchange  for  gold  in  a  particular  coin,  to  give 
more  than  an  equal  quantity  of  other  gold  ;  but  this  difference 
can  never  exceed  a  certain  small  limit :  and  thus  it  has  happened 
that  the  Bank,  while  liable  to  pay  its  notes  in  specie,  has  under 
particular  emergencies  been  put  to  the  necessity  of  purchasing 
gold  at  a  loss,  in  order  to  keep  up  or  to  repair  its  stock.  But 
generally  speaking,  the  price  of  gold,  being  itself  measured  and 
expressed  in  gold,  cannot  be  raised  or  lowered  by  an  increased 
or  diminished  demand  for  it.  An  ounce  of  gold  will  exchange 
for  neither  more  nor  less  than  an  ounce  of  gold  of  the  same 
fineness,  except  so  far  as  an  allowance  is  to  be  made,  if  the  one 
ounce  is  coined  or  otherwise  manufactured  and  the  other  is  not, 
for  the  expense  of  that  coinage  or  manufacture.  An  ounce  of 
standard  gold  bullion  will  not  fetch  more  in  our  market  than 
3/.  \*]s.  10^/.,  unless  3/.  i*]s.  \0\1L,  in  our  actual  currency  is 
equivalent  to  less  than  an  ounce  of  gold.  An  increase  or 
diminution  in  the  demand  for  gold,  or  what  comes  to  the  same 
thing,  a  diminution  or  increase  in  the  general  supply  of  gold, 
will,  no  doubt,  have  a  material  effect  upon  the  money  prices  of 
all  other  articles.  An  increased  demand  for  gold,  and  a  conse- 
quent scarcity  of  that  article,  will  make  it  more  valuable  in 
proportion  to  all  other  articles  ;  the  same  quantity  of  gold  will 
purchase  a  greater  quantity  of  any  other  article  than  it  did  be- 
fore :  in  other  words,  the  real  price  of  gold,  or  the  quantity  of 
commodities  given  in  exchange  for  it,  will  rise,  and  the  money 
prices  of  all  commodities  will  fall  ;  the  money  price  of  gold 
itself  will  remain  unaltered,  but  the  prices  of  all  omer  com- 
modities will  fall.  That  this  is  not  the  present  state  of  things 
is  abundantly  manifest ;  the  prices  of  all  commodities  have 
risen,  and  gold  appears  to  have  risen  in  its  price  only  in  com- 
mon with  them.  If  this  common  effect  is  to  be  ascribed  to  one 
and  the  same  cause,  that  cause  can  only  be  found  in  the  state 
of  the  currency  of  this  country. 

Your  Committee  think  it  proper  to  state  still  more  specifi- 
cally, what  appear  to  them  to  be  the  principles  which  govern 
the  relative  prices  of  gold  in  bullion  and  gold  in  coin,  as  well 
as  of  paper  circulating  in  its  place  and  exchangeable  for  it, 
They  cannot  introduce  this  subject  more  properly,  than  by  ad- 
verting to  those  simple  principles  and  regulations,  on  which  a 
coinage  issuing  from  the  King's  mint  is  founded. 

The  object  is,  to  secure  to  the  people  a  standard  of  a  deter- 
minate value,  by  affixing  a  stamp,  under  the  royal  authority,  to 
pieces  of  gold,  which  are  thus  certified  to  be  of  a  given  weight 


THE  BULLION  REPORT." 


343 


and  fineness.  Gold  in  bullion  is  the  standard  to  which  the  leg- 
islature has  intended  that  the  coin  should  be  conformed,  and 
with  which  it  should  be  identified  as  much  as  possible.  And  if 
that  intention  of  the  legislature  were  completely  fulfilled,  the 
coined  gold  would  bear  precisely  the  same  price  in  exchange 
for  all  other  commodities,  as  it  would  have  borne  had  it  con- 
tinued in  the  shape  of  bullion  ;  but  it  is  subject  to  some  small 
fluctuations. 

First,  there  is  some  expense  incurred  in  converting  bullion  in- 
to coin.  They  who  send  bullion  to  be  coined,  and  it  is  allowed 
to  any  one  to  send  it,  though  they  are  charged  with  no  seignor- 
age,  incur  a  loss  of  interest  by  the  detention  of  their  gold  in 
the  mint.  This  loss  may  hitherto  have  amounted  to  about  i/. 
per  cent.,  but  it  is  to  be  presumed  that  the  improvements  of 
the  system  of  the  new  Mint  will  cause  the  detention  and  con- 
sequent loss  to  be  much  smaller.  This  i/.  per  cent,  has 
formed  the  limit,  or  nearly  the  limit,  to  the  possible  rise  cf 
the  value  of  coin  above  that  of  bullion  ;  for  to  suppose  that 
coin  could,  through  any  cause,  advance  much  above  this  limit, 
would  be  to  assume  that  there  was  a  high  profit  on  a  transac- 
tion, in  which  there  is  no  risk  and  every  one  has  an  opportu- 
nity of  engaging. 

The  two  following  circumstances  conjoined,  account  for  the  de 
pression  of  the  coin  below  the  price  of  bullion,  and  will  shew 
what  must  have  been  the  limit  to  its  extent  before  1797,  the 
period  of  the  suspension  of  the  cash  payments  of  the  Bank  of 
England.  First,  the  coin,  after  it  had  become  current  was 
gradually  diminished  in  weight  by  use,  and  therefore  if  melted, 
would  produce  a  1  iss  quantity  of  bullion.  The  average  dimi- 
nution of  weight  of  the  present  current  gold  coin  below  that  of 
the  same  coin  when  fresh  from  the  mint,  appears  by  the  evi- 
dence to  be  nearly  i7.  per  cent.  This  evil,  in  more  ancient 
times,  was  occasionally  very  great.  It  was  particularly  felt  in  an 
early  period  of  his  present  Majesty's  reign,  and  led  to  the  refor- 
mation of  the  gold  coin  in  1 773.  But  it  is  now  carefully  guarded 
against,  not  only  by  the  legal  punishment  of  every  wilful  dete- 
rioration of  the  gold  coin,  but  also  by  the  regulation  of  the 
statute,  that  guineas,  of  which  the  full  weight  when  fresh  from 
the  mint  is  5  dwts.  9f|  grains  shall  not  be  a  legal  tender  if  worn 
below  5  dwts.  8  grs. ;  the  depreciation  thus  allowed  being  at  the 
utmost  1.  11  per  cent.  A  still  more  material  cause  of  depres- 
sion, is  the  difficulty  under  which  the  holders  of  coin  have  been 
placed  when  they  wished  to  convert  it  into  bullion.  The  law 
of  this  country  forbids  any  other  gold  coin  than  that  which  has 


344 


APPENDIX. 


become  light  to  be  put  into  the  melting  pot,  and,  with  a  very 
questionable  policy,  prohibits  the  exportation  of  our  gold  coin, 
and  of  any  gold,  unless  an  oath  is  taken  that  it  has  not  been 
produced  from  the  coin  of  this  realm.  It  appears  by  the  evi- 
dence, that  the  difference  between  the  value  of  gold  bullion 
which  may  be  sworn  off  for  exportation,  and  that  of  the  gold 
produced  or  supposed  to  be  produced  from  our  own  coin,  which 
by  law  is  convertible  only  to  domestic  purposes,  amounts  at 
present  to  between  3s.  and  4s.  per  ounce. 

The  two  circumstances  which  have  now  been  mentioned 
have  unquestionably  constituted,  in  the  judgment  of  your  Com- 
mittee, the  whole  cause  of  that  depression  of  the  value  of  the 
gold  coin  of  this  country  in  exchange  for  commodities,  below , 
the  value  of  bullion  in  exchange  for  commodities,  which  has 
occasionally  arisen  or  could  arise  at  those  times  when  the  Bank 
paid  in  specie,  and  gold  was  consequently  obtainable  in  the 
quantity  that  was  desired ;  and  the  limit  fixed  by  those  two 
circumstances  conjoined,  to  this  excess  of  the  market  price  of 
gold  above  the  Mint  price,  was  therefore  a  limit  of  about  5J 
per  cent.  The  chief  part  of  this  depression  is  to  be  ascribed 
to  that  ancient,  but  doubtful  policy  of  this  country,  which,  by 
attempting  to  confine  the  coin  within  the  kingdom,  has  served, 
in  the  same  manner  as  permanent  restrictions  on  the  export  of 
other  articles,  to  place  it  under  a  disadvantage,  and  to  give  to 
it  a  less  value  in  the  market  than  the  same  article  would  have 
if  subject  to  no  such  prohibition. 
X  The  truth  of  these  observations  on  the  causes  and  limits  of 
the  ordinary  difference  between  the  market  and  Mint  price  of 
gold,  may  be  illustrated  by  a  reference  to  the  mode,  explained 
in  the  evidence,  of  securing  a  fixed  standard  of  value  for  the 
great  commercial  payments  of  Hamburgh.  The  payments  in 
the  ordinary  transactions  of  life  are  made  in  a  currency  com- 
posed of  the  coins  of  the  several  surrounding  states  ;  but  silver 
is  the  standard  there  resorted  to  in  the  great  commercial  pay- 
ments, as  gold  is  in  England.  No  difference  analogous  to  that 
which  occurs  in  this  country,  between  the  Mint  and  market 
price  of  gold,  can  ever  arise  at  Hamburgh  with  regard  to  silver, 
because  provision  is  made  that  none  of  the  three  causes  above 
specified  [the  expense  of  coinage,  the  depreciation  by  wear, 
or  the  obstruction  to  exportation]  shall  have  any  operation. 
The  large  payments  of  Hamburgh  are  effected  in  Bank  money, 
which  consists  of  actual  silver  of  a  given  fineness,  lodged  in 
the  Hamburgh  bank  by  the  merchants  of  the  place,  who  there- 
upon have  a  proportionate  credit  in  the  bank-books,  which  the) 


THE  BULLION  REPORT." 


345 


transfer  according  to  their  occasions.  The  silver  being  assayed 
and  weighed  with  scarcely  any  loss  of  time,  the  first  mentioned 
cause  of  fluctuation  in  the  relative  value  of  the  current  medium 
compared  with  bullion  is  avoided.  Certain  masses  of  it  being" 
then  certified  (without  any  stamp  being  affixed  on  the  metal)  to 
be  of  a  given  quantity  and  fineness,  the  value  is  transferred 
from  individual  to  individual  by  the  medium  merely  of  the  bank, 
books,  and  thus  the  wearing  of  the  coin  being  prevented,  one 
cause  of  depreciation  is  removed.  A  free  right  is  also  given  to 
withdraw,  melt,  and  export  it  ;  and  thus  the  other  and  principal 
source  of  the  occasional  fall  of  the  value  of  the  current  me- 
dium of  payment,  below  that  of  the  bullion  which  it  is  intend- 
ed to  represent,  is  also  effectually  precluded. 

In  this  manner  at  Hamburgh,  silver  is  not  only  the  measure 
of  all  exchangeable  value,  but  it  is  rendered  an  invariable 
measure,  except  in  so  far  as  the  relative  value  of  silver  itself 
varies  with  the  varying  supply  of  that  precious  metal  from  the 
mines.  In  the  same  manner  the  usage,  and  at  last  the  law, 
which  made  gold  coin  the  usual  and  at  last  the  only  legal  ten- 
der in  large  payments  here,  rendered  that  metal  our  measure  of 
value  :  and  from  the  period  of  the  reformation  of  the  gold  coin 
down  to  the  suspension  of  the  Bank  payments  in  specie  in  1797, 
gold  coin  was  not  a  very  variable  measure  of  value  ;  being  sub- 
ject only  to  that  variation  in  the  relative  value  of  gold  bullion 
which  depends  upon  its  supply  from  the  mines,  together  with 
that  limited  variation,  which,  as  above  described,  might  take 
place  between  the  market  and  the  Mint  price  of  gold  coin. 

The  highest  amount  of  the  depression  of  the  coin  which  can 
take  place  when  the  Bank  pays  in  gold,  has  just  been  stated  to 
be  about  5+  per  cent,  and  accordingly  it  will  be  found,  that  in 
all  the  periods  preceding  1797,  the  difference  between  what  is 
called  the  Mint  price  and  market  price  of  gold  never  exceeded 
that  limit. 

Since  the  suspension  of  cash  payments  in  1797,  however,  it 
is  certain,  that,  even  if  gold  is  still  our  measure  of  value  and 
standard  of  prices,  it  has  been  exposed  to  a  new  cause  of  vari- 
ation, from  the  possible  excess  of  that  paper  which  is  not  con- 
vertible into  gold  at  will ;  and  the  limit  of  this  new  variation  is 
as  indefinite  as  the  excess  to  which  that  paper  may  be  issued. 
It  may  indeed  be  doubted,  whether  since  the  new  system  of 
Bank  of  England  payments  has  been  fully  established,  gold  has 
in  truth  continued  to  be  our  measure  of  value  :  and  whether 
we  have  any  other  standard  prices  than  that  circulating  medium 
issued  primarily  by  the  Bank  of  England  and  in  a  secondary 
15* 


346  APPENDIX. 

manner  by  the  country  banks,  the  variations  of  which  in  rela* 
tive  value  may  be  as  indefinite  as  the  possible  excess  of  that 
circulating  medium.  But  whether  our  present  measure  of 
value,  and  standard  of  prices,  be  this  paper  currency  thus  vari- 
able in  its  relative  value,  or  continues  still  to  be  gold,  but  gold 
rendered  more  variable  than  it  was  before  in  consequence  of 
being  interchangeable  for  a  paper  currency,  which  is  not  at  will 
convertible  into  gold,  it  is,  in  either  case,  most  desirable  for  the 
public  that  our  circulating  medium  should  again  be  conformed, 
as  speedily  as  circumstances  will  permit,  to  its  real  and  legal 
standard,  gold  bullion. 

If  the  gold  coin  of  the  country  were  at  any  time  to  become 
very  much  worn  and  lessened  in  weight,  or  if  it  should  sniffer  a 
debasement  of  its  standard,  it  is  evident  that  there  would  be  a 
proportionable  rise  of  the  market  price  of  gold  bullion  above  its 
Mint  price  :  for  the  Mint  price  is  the  sum  in  coin,  which  is 
equivalent  in  intrinsic  value  to  a  given  quantity,  an  ounce  for 
example,  of  the  metal  in  bullion  ;  and  if  the  intrinsic  value  of 
that  sum  of  coin  be  lessened,  it  is  equivalent  to  a  less  quantity 
of  bullion  than  before.  The  same  rise  of  the  market  price  of 
gold  above  its  Mint  price  will  take  place,  if  the  local  currency 
of  this  particular  country,  being  no  longer  convertible  into  gold, 
should  at  anytime  be  issued  to  excess.  That  excess  cannot  be 
exported  to  other  countries,  and,  noj:  being  convertible  into 
specie,  it  is  not  necessarily  returned  upon  those  who  issued  it ; 
it  remains  in  the  channel  of  circulation,  and  is  gradually  ab- 
sorbed by  increasing  the  prices  of  all  commodities.  An  in- 
crease in  the  quantity  of  the  local  currency  of  a  particular 
country,  will  raise  prices  in  that   country  exactly  in   the   same 

£-  manner  as  an  increase  in  the  general  supply  of  precious  met- 
als raises  prices  all  over  the  world.  By  means  of  the  increase 
of  quantity,  the  value  of  a  given  portion  of  that  circulating 
medium,  in  exchange  for  other  commodities,  is  lowered  :  in 
other  words,  the  money  prices   of  all   other  commodities  are 

/raised,  and  that  of  bullion  with  the  rest.  In  this  manner,  an 
excess  of  the  local  currency  of  a  particular  country  will  occa- 
sion a  rise  of  the  market  price  of  gold  above  its  Mint  price.* 

*  This  is  the  point  on  which  Tooke  differed  from  the  Bullion  Committee. 
Mr.  Horner,  in  his  speech,  assumed  that  grain  was  a  general  measure  of 
value,  as  between  different  periods,  a  notion  now  abandoned,  and  the  same 
opinion  underlies  this  passage.  Grain  was  dear,  but,  as  Tooke  shows,  many 
other  things  were  "oppressively  cheap."  Macleod's  comment  is,  that 
.hey  would  have  been  much  cheaper  but  for  the  depreciated  currency,  ana 
that  the  Committee  ought  to  have  relied  entirely  upon  the  gold  premium  to 


THE   BULLION  REPORT: 


347 


It  is  no  less  evident,  that  in  the  event  of  the  prices  of  com- 
modities being  raised  in  one  country  by  an  augmentation  of 
its  circulating  medium,  while  no  similar  augmentation  in  the 
circulating  medium  of  a  neighboring  country  lias  led  to  a  simi- 
lar rise  of  prices,  the  currencies  of  those  two  countries  will  no 
longer  continue  to  bear  the  same  relative  value  to  each  other 
as  before.  The  intrinsic  value  of  a  given  portion  of  the  one 
currency  being  lessened  while  that  of  the  other  remains  unal- 
tered, the  exchange  will  be  computed  between  those  two  coun- 
tries to  the  disadvantage  of  the  former. 

In  this  manner,  a  general  rise  of  all  prices,  a  rise  in  the  mar- 
ket price  of  gold,  and  a  fall  of  the  foreign  exchanges,  will  be 
the  effect  of  an  excessive  quantity  of  circulating  medium  in  a 
country  which  has  adopted  a  currency,  not  exportable  to  other 
countries,  or  not  convertible  at  will  into  a  coin  which  is  expor- 
table. 

II. 

Your  Committee  are  thus  led  to  the  next  head  of  their  in- 
quiry :  the  present  state  of  the  exchanges  between  this  country 
and  the  continent.  And  here,  as  under  the  former  head,  your 
Committee  will  first  state  the  opinions  which  thev  have  received 
from  practical  men,  respecting  the  causes  of  the  present  state 
of  the  exchange. 

Mr.  Greffulhe,  a  general  merchant,  trading  chiefly  to  the  con- 
tinent, ascribed  the  fall  of  exchange  between  London  and  Ham- 
burgh, near  18  per  cent,  below  par,  in  the  year  1809,  "  alto- 
gether to  the  commercial  situation  of  this  country  with  the  conti- 
nent ;  to  the  circumstance  of  the  imports,  and  payments  of  sub- 
sidies. &c,  having  very  much  exceeded  the  exports."  He  stated, 
however,  that  he  formed  his  judgment  of  the  balance  of  trade 
in  a  great  measure  from  the  state  of  the  exchange  itself,  though  it 
was  corroborated  by  what  fell  under  his  observation.  He  insisted 
particularly  on  the  large  imports  from  the  Baltic,  and  the  wines 
and  brandies  brought  from  France,  in  return  for  which  no  mer- 
chandise had  been  exported  from  this  country.  He  observed 
on  the  other  hand,  that  the  export  of  colonial  produce  to  the 
continent  had  increased  in  the  last  year  compared  with  former 


prove  their  point.  He  also  desires  to  have  it  remembered  that  "  excess  "  of 
currency  is  a  relative  term,  and  that  it  mist  be  understood  to  mean  excess 
relatively  to  the  wants  of  commerce  at  the  time  in  question, — a  limitation 
which  is  to  be  understood  as    {  course.      (See  p.  221.). 


348  APPENDIX. 

years ;  and  that  during  the  last  year  there  was  an  excess,  to  a 
considerable  amount,  of  the  exports  of  colonial  produce  and 
British  manufactures  to  Holland  above  the  imports  from 
thence,  but  not  nearly  equal,  he  thought,  to  the  excess  of  im- 
ports from  other  parts  of  the  world,  judging  from  the  state  of 
the  exchange  as  well  as  from  what  fell  generally  under  his  ob- 
servation. He  afterwards  explained,  that  it  was  not  strictly  the 
balance  of  trade,  but  the  balance  of  payments,  being  unfavour- 
able to  this  country,  which  he  assigned  as  the  principal  cause 
of  the  rate  of  exchange  ;  observing  also,  that  the  balance  of 
payments  for  the  year  may  be  against  us,  while  the  general  ex- 
ports exceed  the  imports.  He  gave  it  as  his  opinion  that  the 
cause  of  the  present  state  of  exchange  was  entirely  commer- 
cial, with  the  addition  of  the  foreign  expenditure  of  govern* 
mient  ;  and  that  an  excess  of  imports  above  exports  would  ac- 
^  count  for  the  rates  of  exchange  continuing  so  high  as  16  per 
cent,  against  this  country,  for  a  permanent  period  of  time. 

It  will  be  found  in  the  evidence,  that  several  other  witnesses 
agree  in  substance  with  Mr.  Grefmlhe,  in  this  explanation  of 
the  unfavourable  state  of  the  exchange ;  particularly  Mr. 
Chambers  and  Mr.  Coningham. 

Sir  Francis  Baring  stated  to  the  Committee,  that  he  consid- 
ered the  two  great  circumstances  which  affect  the  exchange  in 
.  its  present  unfavourable  state,  to  be  the  restrictions  upon  trade 
with  the  continent,  and  the  increased  circulation  of  this  coun- 
5-  try  in  paper,  as  productive  of  the  scarcity  of  bullion.  And  he 
instanced,  as  examples  of  a  contrary  state  of  things,  the  seven 
years'  war,  and  the  American  war,  in  which  there  were  the  same 
remittances  to  make  to  the  continent  for  naval  and  military  ex- 
penditure, yet  no  want  of  bullion  ever  was  felt. 

The  Committee  likewise  examined  a  very  eminent  continent- 
al merchant,  whose  evidence  will  be  found  to  contain  a  variety 
of  valuable  information.  That  gentleman  states,  that  the  ex- 
change cannot  fall  in  any  country  in  Europe  at  the  present 
time,  if  computed  in  coin  of  a  definitive  value,  or  in  something 
convertible  into  such  coin,  lower  than  the  extent  of  the  charge 
-  of  transporting  it,  together  with  an  adequate  profit  in  proper 
tion  to  the  risk  attending  such  transmission.  He  conceives, 
that  such  fall  of  our  exchange  as  has  exceeded  that  extent  in 
the  last  15  months,  must  certainly  be  referred  to  the  circum- 
stance of  our  paper  currency  not  being  convertible  into  specie  ; 
>  and  that  if  that  paper  had  been  so  convertible,  and  guineas  had 
been  in  general  circulation,  an  unfavourable  balance  of  trade, 
could  hardly  have  caused  so  great  a  fall  in  the  exchange  as  to 


THE  BULLION  REPORT." 


349 


the  extent  of  5  or  6  per  cent.  He  explains  his  opinion  upon 
the  subject  more  specifically  in  the  following  answers,  which 
are  extracted  from  different  parts  of  his  evidence. 

"  To  what  causes  do  you  ascribe  the  present  unfavourable 
course  of  exchange  ? — The  first  great  depreciation  took  place 
when  the  French  got  possession  of  the  north  of  Germany,  and 
passed  severe  penal  decrees  against  a  communication  with  this 
country;  at  the  same  time  that  a  sequestration  was  laid  upon 
all  English  goods  and  property,  whilst  the  payments  for  Eng- 
lish account  were  still  to  be  made,  and  the  reimbursements  to 
be  taken  on  this  country  ;  many  more  bills  were  in  conse- 
quence to  be  sold  than  could  be  taken  by  persons  requiring  to 
make  payments  in  England.  The  communication  by  letters 
being  also  very  difficult  and  uncertain,  middle  men  were  not  to 
be  found,  as  in  usual  times,  to  purchase  and  send  such  bills  to 
England  for  returns  ;  whilst  no  suit  at  law  could  be  instituted 
in  the  courts  of  justice  there  against  any  person  who  chose 
to  resist  payment  of  a  returned  bill,  or  to  dispute  the  charges 
of  re-exchange.  Whilst  those  causes  depressed  the  exchange, 
payments  due  to  England  only  came  round  at  distant  periods  ; 
the  exchange  once  lowered  by  those  circumstances,  and  bullion 
being  withheld  in  England  to  make  up  those  occasional  differ- 
ences, the  operations  between  this  country  and  the  continent 
have  continued  at  a  low  rate,  as  it  is  only  matter  of  opinion 
what  rate  a  pound  sterling  is  there  to  be  valued  at,  not  being 
able  to  obtain  what  it  is  meant  to  represent." 

"The  exchange  against  England  fluctuating  from  15  to  20 
per  cent,  how  much  of  that  loss  may  be  ascribed  to  the  effect 
of  the  measures  taken  by  the  enemy  in  the  north  of  Germany, 
and  the  interruption  of  intercourse  which  has  been  the  result, 
and  how  much  to  the  effect  of  the  Bank  of  England  paper  not 
being  convertible  into  cash,  to  which  you  have  ascribed  a  part 
of  that  depreciation  ?  — I  ascribe  the  whole  of  the  deprecia- 
tion to  have  taken  place  originally  in  consequence  of  the/* 
measures  of  the  enemy,  and  its  not  having  recovered  to  the 
circumstance  of  the  paper  of  England  not  being  exchangeable 
for  cash." 

"  Since  the  conduct  of  the  enemy  which  you  have  described 
what  other  causes  have  continued  to  operate  on  the  continent 
to  lower  the  course  of  exchange? — Very  considerable  ship- 
ments from  the  Baltic,  which  were  drawn  for  and  the  bills  ne- 
gotiated immediately  on  the  shipments  taking  place,  without 
consulting  the  interest  of  the  proprietors  in  this  country  much, 
by  deferring  such  a  negotiation  till  a  demand  should  take  place 


350 


APPENDIX. 


for  such  bills  :  The  continued  difficulty  and  uncertainty  in  car- 
rying on  the  correspondence  between  this  country  and  the  con- 
tinent :  The  curtailed  number  of  houses  to  be  found  on  the 
continent  willing  to  undertake  such  operations,  either  by  ac- 
cepting bills  for  English  account  drawn  from  the  various  parts 
where  shipments  take  place,  or  by  accepting  bills  drawn  from 
this  country,  either  against  property  shipped,  or  on  a  specula- 
tive idea  that  the  exchange  either  ought  or  is  likely  to  rise  *. 
The  length  of  time  that  is  required  before  goods  can  be  con- 
verted into  cash,  from  the  circuitous  routes  they  are  obliged  to 
take  :  The  very  large  sums  of  money  paid  to  foreign  ship  own- 
ers, which  in  some  instances,  such  as  on  the  article  of  hemp, 
has  amounted  to  nearly  its  prime  cost  in  Russia:  The  want  of 
middle  men  who  as  formerly  used  to  employ  great  capitals  in 
exchange  operations,  who,  from  the  increased  difficulties  and 
dangers  to  which  such  operations  are  now  subject,  are  at  pres- 
ent rarely  to  be  met  with,  to  make  combined  exchange  opera- 
tions, which  tend  to  anticipate  probable  ultimate  results." 

The  preceding  answers,  and  the  rest  of  this  gentleman's  evi- 
dence, all  involve  this  principle,  expressed  more  or  less  dis- 
tinctly, that  bullion  is  the  true  regulator  both  of  the  value  of  a 
local  currency  and  of  the  rate  of  foreign  exchanges  ;  and  that 
the  free  convertibility  of  paper  currency  into  the  precious  met- 
als, and  the  free  exportation  of  those  metals,  place  a  limit  to 
the  fall  of  exchange,  and  not  only  check  the  exchanges  from 
falling  below  that  limit,  but  recover  them  by  restoring  the  bal- 
ance. 

Your  Committee  need  not  particularly  point  out  in  what  re- 
spects these  opinions  received  from  persons  of  practical  detail, 
are  vague  and  unsatisfactory,  and  in  what  respects  they  are  con- 
tradictory of  one  another;  considerable  assistance,  however, 
may  be  derived  from  the  information  which  the  evidence  of 
these  persons  affords,  in  explaining  the  true  causes  of  the  pres- 
ent state  of  the  exchanges. 

Your  Committee  conceive  that  there  is  no  point  of  trade, 
considered  politically,  which  is  better  settled,  than  the  subject 
N  of  foreign  exchanges.  The  par  of  exchange  between  two 
countries  is  that  sum  of  the  currency  of  either  of  the  two,  which, 
in  point  of  intrinsic  value,  is  precisely  equal  to  a  given  sum  of 
the  currency  of  the  other  ;  that  is,  contains  precisely  an  equal 
weight  of  gold  or  silver  of  the  same  fineness.  If  25  livres  of 
France  contained  precisely  an  equal  quantity  of  pure  silver 
with  20J-.  sterling,  25  would  be  said  to  be  the  par  of  exchange 
between  London  and  Paris.     If  one  country  uses  gold  for  its 


"THE  BULLION  REPORT:  351 

principal  measure  of  value,  and  another  uses  silver,  the  par  be- 
tween those  countries  cannot  be  estimated  for  any  particular 
period,  without  taking  into  account  the  relative  value  of  gold 
and  silver  at  that  particular  period  ;  and  as  the  relative  value 
of  the  two  precious  metals  is  subject  to  fluctuation,  the  par  of 
exchange  between  two  such  countries  is  not  strictly  a  fixed 
point,  but  fluctuates  within  certain  limits.  An  illustration  of 
this  will  be  found  in  the  evidence,  in  the  calculation  of  the  par 
between  London  and  Hamburgh,  which  is  estimated  to  be 
34/3^-  Flemish  shillings  for  a  pound  sterling.  That  rate  of  ex- 
change, which  is  produced  at  any  particular  period  by  a  balance 
of  trade  or  payments  between  the  two  countries,  and  by  aeon- 
sequent  disproportion  between  the  supply  and  the  demand  of 
bills  drawn  by  the  one  upon  the  other,  is  a  departure  on  one 
side  or  the  other  from  the  real  and  fixed  par.  But  this  real  par 
will  be  altered  if  any  change  takes  place  in  the  currency  of  one 
of  the  two  countries,  whether  that  change  consists  in  the  wear 
or  debasement  of  a  metallic  currency  below  its  standard,  or  in 
the  discredit  of  a  forced  paper  currency,  or  in  the  excess  of  a 
paper  currency  not  convertible  into  specie  ;  a  fall  having  taken 
place  in  the  intrinsic  value  of  a  given  portion  of  one  currency, 
that  portion  will  no  longer  be  equal  to  the  same  portion,  as  be- 
fore, of  the  other  currency.  But  though  the  real  par  of  the 
currencies  is  thus  altered,  the  dealers,  having  little  or  no  oc- 
casion to  refer  to  the  par,  continue  to  reckon  their  course  of 
exchanges  from  the  former  denomination  of  the  par ;  and  in 
this  state  of  things  a  distinction  is  necessary  to  be  made  be- 
tween the  real  and  computed  course  of  exchange.  The  com- 
puted course  of  exchange,  as  expressed  in  the  tables  used  by 
the  merchants,  will  then  include,  not  only  the  real  difference  of 
exchange  arising  from  the  state  of  trade,  but  likewise  the  differ- 
ence between  the  original  par  and  the  new  par.  Those 
two  sums  may  happen  to  be  added  together  in  the  calculation, 
or  they  may  happen  to  be  set  against  each  other.  \{  the  coun- 
try, whose  currency  has  been  depreciated  in  comparison  with 
the  other,  has  the  balance  of  trade  also  against  it,  the  comput- 
ed rate  of  exchange  will  appear  to  be  still  more  unfavourable 
than  the  real  difference  of  exchange  will  be  found  to  be  ;  and 
so  if  that  same  country  has  the  balance  of  trade  in  its  favour, 
the  computed  rate  of  exchange  will  appear  to  be  much  less 
favourable  than  the  real  difference  of  exchange  will  be  found 
to  be.  Before  the  new  coinage  of  our  silver  in  King  William's 
time,  the  exchange  between  England  and  Holland,  computed 
in  the  usual  manner  according  to  the  standard  of  their  respec- 


35* 


APPENDIX. 


tive  Mints,  was  25  per  cent,  against  England  ;  but  the  value  of 
the  current  coin  of  England  was  more  than  25  per  cent,  below 
the  standard  value;  so  that  if  that  of  Holland  was  at  its  fu'l 
standard,  the  real  exchange  was  in  fact  in  favour  of  England. 
It  may  happen  in  the  same  manner,  that  the  two  parts  of  the 
calculation  may  be  both  opposite  and  equal,  the  real  exchange 
in  favour  of  the  country  by  trade  being  equal  to  the  nominal 
exchange  against  it  by  the  state  of  its  currency  ;  in  that  case, 
the  computed  exchange  will  be  at  par,  while  the  real  exchange 
is  in  fact  in  favour  of  that  country.  Again,  the  currencies  of 
both  the  countries  which  trade  together  may  have  undergone 
an  alteration,  and  that  either  in  an  equal  degree,  or  unequally  ; 
in  such  a  case,  the  question  of  the  real  state  of  the  exchange 
between  them  becomes  a  little  more  complicated,  but  it  is  to  be 
resolved  exactly  upon  the  same  principle.  Without  going  out 
of  the  bounds  of  the  present  inquiry,  this  may  be  well  illustra- 
ted by  the  present  state  of  the  exchange  of  London  with  Por- 
tugal, as  quoted  in  the  tables  for  the  18th  of  May  last.  The 
exchange  of  London  on  Lisbon  appears  to  be  67^-  ;  67^/. 
sterling  for  a  milree  is  the  old  established  par  of  exchange  be- 
tween the  two  countries  ;  and  6 7 J-  accordingly  is  still  said  to  be 
the  par.  But  by  the  evidence  of  Mr.  Lyne,  it  appears,  that,  in 
Portugal,  all  payments  are  now  by  law  made  one-half  in  hard 
money,  and  one-half  in  government  paper  ;  and  that  this  paper 
is  depreciated  at  a  discount  of  27  per  cent.  Upon  all  pay- 
ments made  in  Portugal,  therefore,  there  is  a  discount  or  loss 
of  13^-  per  cent,  and  the  exchange  at  67^-,  though  nominally  at 
par,  is  in  truth  13^-  per  cent,  against  this  country.  If  the 
exchange  were  really  at  par,  it  would  be  quoted  at  56^^ 
or  apparently  13^-  per  cent,  in  favour  of  London,  as  compared 
with  the  old  par  which  was  fixed  before  the  depreciation  of  the 
Portuguese  medium  of  payments.  Whether  this  13^  per  cent, 
which  stands  against  this  country  by  the  present  exchange  on 
Lisbon,  is  a  real  difference  of  exchange,  occasioned  by  the 
course  of  trade  and  by  the  remittances  to  Portugal  on  ac- 
count of  government,  or  a  nominal  and  apparent  exchange  oc- 
casioned by  something  in  the  state  of  our  own  currency,  or  is 
partly  real  and  partly  nominal,' may  perhaps  be  determined  by 
what  your  Committee  have  yet  to  state. 

It  appears  to  your  Committee  to  have  been  long  settled  and 
understood  as  a  principle,  that  the  difference  of  exchange  re- 
sulting from  the  state  of  trade  and  payments  between  two 
countries  is  limited  by  the  expense  of  conveying  and  insuring 
the  precious  metals  from  one  country  to   the  other  ;  at   least, 


THE  BULLION  REPORT: 


353 


that  it  cannot  for  any  considerable  length  of  time  exceed  that 
limit.  The  real  difference  of  exchange,  resulting  from  the 
state  of  trade,  and  payments,  never  can  fall  lower  than  the 
amount.of  such  expense  of  carriage,  including  the  insurance. 
The  truth  of  this  position  is  so  plain,  and  it  is  so  uniformly 
agreed  to  by  all  the  practical  authorities,  both  commercial  and 
political,  that  your  Committee  will  assume  it  as  indisputable. 

It  occurred,  however,  to  your  Committee  that  the  amount  of 
that  charge  and  premium  of  insurance  might  be  increased 
above  what  it  has  been  in  ordinary  periods  even  of  war,  by  the 
peculiar  circumstances  which  at  present  obstruct  the  commer- 
cial intercourse  between  this  country  and  the  Continent  cf 
Europe ;  and  that  as  such  an  increase  would  place  so  much 
lower  than  usual  the  limit  to  which  our  exchanges  might  fall,  an 
explanation  might  thereby  be  furnished  of  their  present  unusu- 
al fall.  Your  Committee  accordingly  directed  their  enquiries 
to  this  point. 

It  was  stated  to  your  Committee,  by  the  merchant  who  has 
been  already  mentioned  as  being  intimately  acquainted  with  the 
trade  between  this  country  and  the  Continent,  that  the  present 
expense  of  transporting  gold  from  London  to  Hamburgh,  inde- 
pendent of  the  premium  of  insurance,  is  from  i|-  to  2  per  cent.  ; 
that  the  risk  is  very  variable  from  day  to  day,  so  that  there  is  no 
fixed  premium,  but  he  conceived  the  average  risk,  for  the  fifteen 
months  preceding  the  time  when  he  spoke,  to  have  been  about 
4  per  cent.  :  making  the  whole  cost  of  sending  gold  from  London 
to  Hamburgh  for  those  fifteen  months  at  such  average  of  the 
risk,  from  5^-  to  6  per  cent. — Mr.  Abraham  Goldsmid  stated, 
that  in  the  last  five  or  six  months  of  the  year  1809,  the  expense 
of  sending  gold  to  Holland  varied  exceedingly,  from  4  to  7  per 
cent,  for  all  charges,  covering  the  risk  as  well  as  the  costs  of 
transportation.  By  the  evidence  which  was  taken  before  the 
Committees  upon  the  Bank  Affairs,  in  1797,  it  appears  that  the 
cost  of  sending  specie  from  London  to  Hamburgh  in  that  time 
of  war,  including  all  charges  as  well  as  an  average  insurance, 
was  estimated  at  a  little  more  than  3^-  per  cent.  It  is  clear, 
therefore,  that  in  consequence  of  the  peculiar  circumstances  of 
the  present  state  of  the  war,  and  the  increased  difficulties  of  in- 
tercourse with  the  Continent,  the  cost  of  transporting  the  pre- 
cious metals  thither  from  this  country  has  not  only  been  ren- 
dered more  fluctuating  than  it  used  to  be,  but,  upon  the  whole, 
is  very  considerably  increased.  It  would  appear,  however,  that 
upon  an  average  of  the  risk  for  that  period  when  it  seems  to 
have  been  highest,  the  last  half  of  the  last  year,  the  cost  and 


354 


APPENDIX. 


insurance  of  transporting  gold  to  Hamburgh  or  to  Holland  did 
not  exceed  7  per  cent.  It  was  of  course  greater  at  particular 
times,  when  the  risk  was  above  that  average.  It  is  evident 
also  that  the  risk,  and  consequently  the  whole  cost  of  trans- 
porting it  to  an  inland  market,  to  Paris,  for  example,  would  upon 
an  average,  be  higher  than  that  of  carrying  it  to  Amsterdam 
or  Hamburgh.  Iffollows,  that  the  limit  to  which  the  exchanges, 
as  resulting  from  the  state  of  trade,  might  fall  and  continue  un- 
favourable for  a  considerable  length  of  time,  has,  during  the 
period  in  question,  been  a  good  deal  lower  than  in  former  times 
of  war  ;  but  it  appears  also,  that  the  expense  of  remitting  specie 
has  not  been  increased  so  much,  and  that  the  limit,  by  which 
the  depression  of  the  exchanges  is  bounded,  has  not  been  low- 
ered so  much,  as  to  afford  an  adequate  explanation  of  a  fall  of 
the  exchanges  so  great  as  from  16  to  20  per  cent,  below  par. 
The  increased  cost  of  such  remittance  would  explain,  at  those 
moments  when  the  risk  was  greatest,  a  fall  of  something  more 
than  7  per  cent,  in  the  exchange  with  Hamburgh  or  Holland, 
and  a  fall  still  greater  perhaps  in  the  exchange  with  Paris  ;  but 
the  rest  of  the  fall  which  has  actually  taken  place,  remains  to 
be  explained  in  some  other  manner. 

Your  Committee  are  disposed  to  think  from  the  result  of  the 
whole  evidence,  contradictory  as  it  is,  that  the  circumstances 
of  the  trade  of  this  country,  in  the  course  of  the  last  year,  were 
such  as  to  occasion  a  real  fall  of  our  exchanges  with  the  Conti- 
nent to  a  certain  extent,  and  perhaps  at  one  period  almost  as 
low  as  the  limit  fixed  by  the  expense  of  remitting  gold  from 
hence  to  the  respective  markets.  And  your  Committee  is  in- 
clined to  this  opinion,  both  by  what  is  stated  regarding  the 
excess  of  imports  from  the  Continent  above  the  exports,  though 
that  is  the  part  of  the  subject  which  is  left  most  in  doubt ;  and 
also  by  what  is  stated  respecting  the  mode  in  which  the  pay- 
ments in  our  trade  have  been  latterly  effected,  an  advance  be- 
ing paid  upon  the  imports  from  the  Continent  of  Europe,  and  a 
long  credit  being  given  upon  the  exports  to  other  parts  of 
the  world. 

Your  Committee,  observing  how  entirely  the  present  depres- 
sion of  our  exchange  with  Europe  is  referred  by  many  persons 
to  a  great  excess  of  our  imports  above  our  exports,  have  called 
for  an  account  of  the  actual  value  of  those  for  the  last  five 
years;  and  Mr.  Irving,  the  Inspector  General  of  Customs,  has" 
accordingly  furnished  the  most  accurate  estimate  of  both  that 
he  has  been  enabled  to  form.  He  has  also  endeavoured  to  for- 
ward the  object  of  the  Committee,  by  calculating  how  much 


"THE  BULLION  REPORT: 


355 


should  be  deducted  from  the  value  of  goods  imported,  on  ac- 
count of  articles  in  return  for  which  nothing  is  exported.  These 
deductions  consist  of  the  produce  of  fisheries,  and  of  imports 
from  the  East  and  West  Indies,  which  are  of  the  nature  of  rents, 
profits,  and  capital  remitted  to  proprietors  in  this  country.  The 
balance  of  trade  in  favour  of  this  country,  upon  the  face  of  the 
account  thus  made  up,  was  : 

In  1805  about  £  6,616,000 

"  1806      "      10,437,000 

"1807      "      5,866,000 

"  1808      "      12,481,000 

"1809      "      14,834,000 

So  far  therefore,  as  any  inference  is  to  be  drawn  from  the 
balance  thus  exhibited,  the  exchanges  during  the  present  year, 
in  which  many  payments  to  this  country  on  account  of  the  very 
advantageous  balances  of  the  two  former  years  may  be  ex- 
pected to  take  place,  ought  to  be  peculiarly  favourable. 

Your  Committee,  however,  place  little  confidence  in  de- 
ductions made  even  from  the  improved  document  which  the 
industry  and  intelligence  of  the  Inspector  General  has  enabled 
him  to  furnish.  It  is  defective,  as  Mr.  Irving  has  himself  stated, 
inasmuch  as  it  supplies  no  account  of  the  sum  drawn  by  for- 
eigners (which  is  at  the  present  period  peculiarly  large)  on  ac- 
count of  freight  due  to  them  for  the  employment  of  their  ship- 
ping, nor,  on  the  other  hand,  of  the  sum  receivable  from  them 
(and  forming  an  addition  to  the  value  of  our  exported  articles),  on 
account  of  freight  arising  from  the  employment  of  British  shipping. 
It  leaves  out  of  consideration  all  interest  on  capital  in  England 
possessed  by  foreigners,  and  on  capital  abroad  belonging  to 
inhabitants  of  Great  Britain,  as  well  as  the  pecuniary  trans- 
actions between  the  governments  of  England  and  Ireland.  It 
takes  no  cognizance  of  contraband  trade,  and  of  exported  and 
imported  bullion,  of  which  no  account  is  rendered  at  the  Cus- 
tom-house. It  likewise  omits  a  most  important  article,  the 
variations  of  which,  if  correctly  stated,  would  probably  be  found 
to  correspond  in  a  great  degree  with  the  fluctuations  of  the 
apparently  favorable  balance  ;  namely,  the  bills  drawn  on  gov- 
ernment for  our  naval,  military,  and  other  expenses  in  foreign 
parts.  Your  Committee  had  hoped  to  receive  an  account  of 
these  from  the  table  of  the  House  ;  but  there  has  been  some 
difficulty  and  consequent  delay  in  executing  a  material  part  of 
the  order  made  for  them.  It  appears  from  "  An  Account,  as  far 
as  it  could  be  made  out,  of  sums  paid  for  expenses  abroad  in 


35<5 


APPENDIX. 


1793-4-5-6,"  inserted  in  the  Appendix  of  the  Lords'  Report  on 
the  occasion  of  the  Bank  Restriction  Bill,  that  the  sums  so 
paid  were, 

In  1793  £  2,785,252 

"   J794  8,335,591 

"   1795 11,040,236 

"   1796  10,649,916 

The  following  is  an  account  of  the  official  value  of  our  Im- 
ports and  Exports  with  the  Continent  of  Europe,  alone,  in 
each  of  the  last  five  years  : 


1805 
1806 
1807 
1808 
1809 


Imports. 


Exports. 


^10,008,649 
8,197,256 
7,973»5IO 
4,210,671 
9,551,857 


£15,465,430 
1 3,**  6, 386 
12,6^9,590 
11,280,490 
23,722,615 


Balance  in  favor 

of  Great  Britain, 

reckoned  in 

Official  Value. 


£  5,456,781 

5,oi9>  X3Q 

4,7i6,oSo 

7,069,819 

14,170,758 


The  balances  with  Europe  alone  in  favour  of  Great  Britain, 
as  exhibited  in  this  imperfect  statement,  are  not  far  from  cor- 
responding with  the  general  and  more  accurate  balances  before 
given.  The  favourable  balance  of  1809  with  Europe  alone,  if 
computed  according  to  the  actual  value,  would  be  much  more 
considerable  than  the  value  of  the  same  year,  in  the  former 
general  statement.  A  favourable  balance  of  trade  on  the  face 
of  the  account  of  exports  and  imports,  presented  annually  to 
Parliament,  is  a  very  probable  consequence  of  large  drafts  on 
Government  for  foreign  expenditure  ;  and  augmentation  of  ex- 
ports, and  a  diminution  of  imports,  being  promoted  and  even 
enforced  by  the  means  of  such  drafts.  For  if  the  supply  of 
bills  drawn  abroad,  either  by  the  agents  of  Government,  or  by 
individuals,  is  disproportionate  to  the  demand,  the  price  of 
them  in  foreign  money  falls,  until  it  is  so  low  as  to  invite  pur- 
chasers ;  and  the  purchasers,  who  are  generally  foreigners,  not 
wishing  to  transfer  their  property  permanently  to  England,  have 
a  reference  to  the  terms  on  which  the  bills  on  England  will 
purchase  those  British  commodities  which  are  in  demand,  either 
in  their  own  country,  or  in  intermediate  places,  with  which  the 


THE  BULLION  REPORT. 


357 


account  may  be  adjusted.  Thus,  the  price  of  the  bills  being 
regulated  in  some  degree  by  that  of  British  commodities,  and 
continuing  to  fall  till  it  becomes  so  low  as  to  be  likely  to  afford 
profit  on  the  purchase  and  exportation  of  these  commodities, 
an  actual  exportation  nearly  proportionate  to  the  amount  of  the 
bills  drawn  can  scarcely  fail  to  take  place.  It  follows,  that 
there  cannot  be,  for  any  long  period,  either  a  highly  favourable 
or  unfavourable  balance  of  trade;  for  the  balance  no  sooner 
affects  the  price  of  bills,  than  the  price  of  bills,  by  its  re-action 
on  the  state  of  trade,  promotes  an  Equalization  of  commercial 
exports  and  imports.  Your  Committee  have  here  considered 
cash  and  bullion  as  forming  a  part  of  the  general  mass  of  ex- 
ported or  imported  articles,  and  as  transferred  according  to  the 
state  both  of  the  supply  and  the  demand ;  forming,  however, 
under  certain  circumstances,  especially  in  case  of  great  fluct- 
uations in  the  general  commerce,  a  peculiarly  commodious  re- 
mittance. 

Your  Committee  have  enlarged  on  the  documents  supplied 
by  Mr.  Irving,  for  the  sake  of  throwing  further  light  on  the 
general  question  of  the  balance  of  trade  and  the  exchanges, 
and  of  dissipating  some  very  prevalent  errors  which  have  a 
great  practical  influence  on  the  subject  now  under  consideration. 

That  the  real  exchange  against  this  country  with  the  conti- 
nent cannot  at  any  time  have  materially  exceeded  the  limit 
fixed  by  the  cost  at  that  time  of  transporting  specie,  your 
Committee  are  convinced  upon  the  principles  which  have  been 
already  stated.  That  in  point  of  fact,  those  exchanges  have  not 
exceeded  that  limit  seems  to  receive  a  very  satisfactory  illustra- 
tion from  one  part  of  the  evidence  of  Mr.  GrefTulhe,  who,  of 
all  the  merchants  examined,  seemed  most  wedded  to  the  opin- 
ion that  the  state  of  the  balance  payments  alone  was  sufficient 
to  account  for  any  depression  of  the  exchanges,  however  great. 
From  what  the  Committee  have  already  stated  with  respect 
to  the  par  of  exchange,  it  is  manifest  that  the  exchange  between 
two  countries  is  at  its  real  par,  when  a  given  quantity  of  gold 
or  silver  in  the  one  country  is  convertible  at  the  market  price 
into  such  an  amount  of  the  currency  of  that  country,  as  will 
purchase  a  bill  of  exchange  on  the  other  country  for  such  an 
amount  of  the  currency  of  that  other  country,  as  will  there  be 
convertible  at  the  market  price  into  an  equal  quantity  of  gold 
or  silver  of  the  same  fineness.  In  the  same  manner  the  real  ex- 
change is  in  favour  of  a  country  having  money  transactions 
with  another,  when  a  given  quantity  of  gold  or  silver  in  the  for- 
mer is  convertible  for  such  an  amount  in  the  currency  of  that 


35% 


APPENDIX. 


latter  country,  as  will  there  be  convertible  mto  a  greater  quan- 
tity of  gold  or  silver  of  the  same  fineness. 

Upon  these  principles,  your  Committee  desired  Mr.  Greffulhe 
to  make  certain  calculations,  which  appear  in  his  answers  to 
the  following  questions,  viz.  : 

"  Supposing  you  had  a  pound  weight  troy  of  gold  of  the 
English  standard  at  Paris,  and  that  you  wished  by  means  of 
that  to  procure  a  bill  of  exchange  upon  London,  what  would 
be  the  amount  of  the  bill  of  exchange  which  you  would  procure 
in  the  present  circumstances  ? — I  find  that  a  pound  of  gold  of 
the  British  standard  at  the  present  market  price  of  105  francs, 
and  the  exchange  at  20  livres,  would  purchase  a  bill  of  exchange 
of  59/.  8s. 

"At  the  present  market  price  of  gold  in  London,  how  much 
standard  gold  can  you  purchase  for  59/.  8s.  ? — At  the  price  of 
4/.  12J-,  I  find  it  will  purchase  13  ounces  of  gold,  within  a  very 
small  fraction. 

"  Then  what  is  the  difference  per  cent,  in  the  quantity  of 
standard  gold  which  is  equivalent  to  59/.  8s.  of  our  currency  as 
at  Paris  and  in  London  ? — About  8^-  per  cent. 

"  Suppose  you  have  a  pound  weight  troy  of  our  standard  gold 
at  Hamburgh,  and  that  you  wished  to  part  with  it  for  a  bill  of 
exchange  upon  London,  what  would  be  the  amount  of  the  bill 
of  exchange,  which,  in  the  present  circumstances,  you  would 
procure? — At  the  Hamburgh  price  of  101,  and  the  exchange  at 
29,  the  amount  of  the  bill  purchased  on  London  would  be  58/. 
4s. 

"What  quantity  of  our  standard  gold,  at  the  present  price  of 
4/.  1 2s.  do  you  purchase  for  58/.  4$-.  ? — About  12  ounces  and  3 
dwts. 

"Then  what  is  the  difference  per  cent,  between  the  quantity 
of  standard  gold  at  Hamburgh  and  in  London,  which  is  equiva- 
lent to  58/.  4J-.  sterling? — About  5$  per  cent. 

"  Suppose  you  had  a  pound  weight  troy  of  our  standard  gold 
at  Amsterdam,  and  wished  to  part  with  it  for  a  bill  of  exchange 
upon  London,  what  would  be  the  amount  sterling  of  the  bill  of 
exchange  which  you  would  procure? — At  the  Amsterdam  price 
of  14J,  exchange  31.6,  and  Bank  agio  1  per  cent,  the  amount 
of  the  bill  on  London  would  be  58/.  18s. 

"  At  the  present  price  of  4/.  12s.  what  quantity  of  our  stand- 
ard gold  do  you  purchase  in  London  for  58/.  18s.  sterling? — • 
12  oz.  16  dwts. 

"  How  much  is  that  per  cent.  ? — 7  per  cent." 

Similar  calculations,  but  made  upon  different  assumed  data, 


THE  BULLION  REPORT." 


359 


will  be  found  in  the  evidence  of  Mr.  Abraham  Gold-mid.  From 
these  answers  of  Mr.  Greffulhe,  it  appears,  that  when  the  com- 
puted exchange  with  Hamburg  was  29,  that  is,  from  16  to  17 
per  cent,  below  par,  the  real  difference  of  exchange,  resulting 
from  the  state  of  trade  and  balance  of  payments  was  no  more 
than  5^-  per  cent,  against  this  country  ;  that  when  the  computed 
exchange  with  Amsterdam  was  31.  6,  that  is  about  15  per  cent, 
below  par,  the  real  exchange  was  no  more  than  7  per  cent, 
against  this  country  ;  that  when  the  computed  exchange  with 
Paris  was  20,  that  is  20  per  cent,  below  par,  the  real  exchange 
was  no  more  than  8J  per  cent,  against  this  country.  After 
making  these  allowances,  therefore,  for  the  effect  of  the  balance 
of  trade  and  payments  upon  our  exchanges  with  those  places, 
there  will  still  remain  a  fall  of  1 1  per  cent,  in  the  exchange  with 
Hamburgh,  of  above  8  percent,  in  the  exchange  with  Holland, 
and  11^-  per  cent,  in  the  exchange  with  Paris,  to  be  explained 
in  some  other  manner. 

If  the  same  mode  of  calculation  be  applied  to  the  more 
recent  statements  of  the  exchange  with  the  continent,  it  will 
perhaps  appear,  that  though  the  computed  exchange  is  at  present 
against  this  country,  the  real  exchange  is  in  its  favor. 

From  the  foregoing  reasons  relative  to  the  state  of  the  exchanges, 
if  they  are  considered  apart,  your  Committee  find  it  difficult  to 
resist  an  inference,  that  a  portion  at  least  of  the  great  fall  which 
the  exchanges  lately  suffered  must  have  resulted  not  from  the 
state  of  trade,  but  from  a  change  in  the  relative  value  of  our 
domestic  currency.  But,  when  this  deduction  is  joined  with 
that  which  your  Committee  have  stated,  respecting  the  change 
in  the  market  price  of  gold,  that  inference  appears  to  be  dem- 
onstrated. 

III. 

In  consequence  of  the  opinion  which  your  Committee  enter- 
tained, that,  in  the  present  artificial  condition  of  the  circulating 
medium  of  this  country,  it  is  most  important  to  watch  the 
foreign  exchanges  and  the  market  price  of  gold,  yom  Committee 
were  desirous  to  learn  whether  the  Directors  of  the  Bank  of 
England  held  the  same  opinion,  and  derived  from  it  a  practical 
rule  for  the  control  of  their  circulation  ;  and  particularly 
whether,  in  the  course  of  the  last  year,  the  great  depression  of 
the  exchanges,  and  the  great  rise  in  the  juice  of  gold,  had  sug- 
gested to  the  Directors  any  suspicion  of  the  currency  of  the 
country  being  excessive. 


360 


APPENDIX. 


Mr.  Whitmore,  the  late  Governor  of  the  Bank,  stated  to  the 
Committee,  that  in  regulating  the  general  amount  of  the  loans 
and  discounts,  he  did  4'  not  advert  to  the  circumstance  of  the 
exchanges  ;  it  appearing  upon  a  reference  to  the  amount  of  our 
notes  in  circulation,  and  the  course  of  exchange,  that  ihey  fre- 
quently have  no  connexion."  He  afterward  said,  "  My  opinion 
is,  I  do  not  know  whether  it  is  that  of  the  Bank,  that  the 
amount  of  our  paper  circulation  has  no  reference  at  all  to  the 
state  of  the  exchange."  And  on  a  subsequent  day,  Mr.  Whit- 
more stated,  that  "  the  present  unfavourable  state  of  exchange 
has  no  influence  upon  the  amount  of  their  issues,  the  Bank 
having  acted  precisely  in  the  same  way  as  they  did  before."  He 
was  likewise  asked,  Whether,  in  regulating  the  amount  of  their 
circulation,  the  Bank  ever  adverted  to  the  difference  between 
the  market  and  Mint  price  of  gold  ?  and  having  desired-to  have 
time  to  consider  that  question,  Mr.  Whitmore,  on  a  subsequent 
day,  answered  it  in  the  following  terms,  which  suggested  these 
further  questions  : 

In  taking  into  consideration  the  amount  of  your  notes,  out 
in  circulation,  and  in  limiting  the  extent  of  your  discounts  to 
merchants,  do  you  advert  to  the  difference,  when  such  exists, 
between  the  market  and  the  Mint  price  of  gold  ? — We  do  ad- 
vert to  that,  inasmuch  as  we  do  not  discount  ac  any  time  for 
those  persons  who  we  know,  or  have  good  reason  to  suppose, 
export  the  gold. 

"  Do  you  not  advert  to  it  any  farther  than  by  refusing  dis- 
counts to  such  persons  ? — We  do  advert  to  it,  inasmuch  as 
whenever  any  Director  thinks  it  bears  upon  the  question  of  our 
discounts,  and  presses  to  bring  forward  the  discussion. 

"The  market  price  of  gold  having,  in  the  course  of  the  last 
year,  risen  as  high  as  4/.  \os.  or  4/.  125-.,  has  that  circumstance 
been  taken  into  consideration  by  you,  so  as  to  have  had  any 
effect  in  diminishing  or  enlarging  the  amount  of  the  outstand- 
ing demands  ? — It  has  not  been  taken  into  consideration  by  me 
in  that  view." 

Mr.  Pearse,  now  Governor  of  the  Bank,  agreed  with  Mr. 
Whitmore  in  this  account  of  the  practice  of  the  Bank,  and  ex- 
pressed his  full  concurrence  in  the  same  opinion. 

Mr.  Pearse. — "  In  considering  this  subject,  with  reference^ 
to  the  manner  in  which  Bank  notes  are  issued,  resulting  from  the 
applications  made  for  discounts  to  supply  the  necessary  want 
of  Bank  notes,  by  which  their  issue  in  amount  is  so  controlled 
that  it  can  never  amount  to  an  excess,  I  cannot  see  how  the 
amount  of  Bank  notes  issued  can  operate  upon  the  price  of 


"THE  BULLION  REPORT:1  361 

Bullion,  or  the  state  of  the  exchanges,  and  therefore  I  am  in- 
dividually of  opinion  that  the  price  of  Bullion,  or  the  state  of  the 
exchanges,  can  never  be  a  reason  for  lessening  the  amount  of 
Bank  notes  to  be  issued,  always  understanding  the  control 
which  I  have  already  described. 

"Is  the  Governor  of  the  Bank  of  the  same  opinion,  which 
has  now  been  expressed  by  the  Deputy  Governor  ? 

Mr.  UHiitmore. —  "I  am  so  much  of  the  same  opinion,  that  I 
never  think  it  necessary  to  advert  to  the  price  of  gold,  or  the 
state  of  the  exchange,  on  the  days  on  which  we  make  our 
advances. 

"  Do  you  advert  to  these  two  circumstances  with  a  view  to 
regulate  the  general  amount  of  your  advances  ? — I  do  not  ad- 
vert to  it  with  a  view  to  our  general  advances,  conceiving  it 
not  to  bear  upon  the  question." 

And  Mr.  Harman,  another  Bank  Director,  expressed  his 
opinion  in  these  terms — "  I  must  very  materially  alter  my 
opinions  before  I  can  suppose  that  the  exchanges  will  be 
influenced  by  any  modifications  of  our  paper  currency." 

These  gentlemen,  as  well  as  several  of  the  merchants  who 
appeared  before  the  Committee,  placed  much  reliance  upon  an 
argument  which  they  drew  from  the  want  of  correspondence  in 
point  of  time,  observable  between  the  amount  of  Bank  of 
England  notes  and  the  state  of  the  Hamburgh  exchange  dur- 
ing several  years  ;  and  Mr.  Pearse  presented  a  paper  on  this 
subject,  which  is  inserted  in  the  Appendix.  Your  Committee 
would  feel  no  distrust  in  the  general  principles  which  they  have 
stated,  if  the  discordance  had  been  greater  ;  considering  the 
variety  of  circumstances  which  have  a  temporary  effect  on  ex- 
change, and  the  uncertainty  both  of  the  time  and  the  degree 
in  which  it  may  be  influenced  by  any  given  quantity  of  paper. 
It  may  be  added,  that  the  numerical  amount  of  notes  (suppos- 
ing 1/.  and  2/.  notes  to  be  excluded  from  the  statement)  did 
not  materially  vary  during  the  period  of  the  comparison  ;  and 
that  in  the  last  year,  when  the  general  exchanges  with  Europe 
have  become  much  more  unfavourable,  the  notes  of  the  Bank 
of  England,  as  well  as  those  of  the  country  Banks,  have  been 
very  considerably  increased.  Your  Committee,  however,  on 
the  whole,  are  not  of  opinion  that  a  material  depression  of  the 
exchanges  has  been  manifestly  to  be  traced  in  its  amount  and 
degree  to  an  augmentation  of  notes  corresponding  in  point  of 
time.  They  conceive,  that  the  more  minute  and  ordinary  fluc- 
tuations of  exchange  are  generally  referable  to  the  course  of 
our  commerce  ;  that  political  events,  operating  upon  the  state 
16 


362 


APPENDIX. 


of  trade,  may  often  have  contributed  as  well  to  the  rise  as  to 
the  fall  of  the  exchange  ;  and  in  particular,  that  the  first  re- 
markable depression  of  it  in  the  beginning  of  1809,  is  to  be  as- 
cribed, as  has  been  stated  in  the  evidence  already  quoted,  to 
commercial  events  arising  out  of  the  occupation  of  the  North 
of  Germany  by  the  troops  of  the  French  Emperor.  The  evil 
has  been  that  the  exchange,  when  fallen,  has  not  had  the  full 
means  of  recovery  under  the  subsisting  system.  And  if  those 
occasional  depressions,  which  arise  from  commercial  causes, 
are  not  after  a  time  successively  corrected  by  the  remedy  which 
used  to  apply  itself  before  the  suspension  of  the  cash  pay- 
ments of  the  Bank,  the  consequences  may  ultimately  be  exactly 
similar  to  those  which  a  sudden  and  extravagant  issue  of  paper 
would  produce.  The  restoration  of  the  exchange  used  to  be 
effected  by  the  clandestine  transmission  of  guineas,  which  im- 
proved it  for  the  moment  by  serving  as  a  remittance  ;  and  un- 
questionably also  in  part,  probably  much  more  extensively,  by 
the  reduction  of  the  total  quantity  of  the  remaining  circulating 
medium,  to  which  reduction  the  banks  were  led  to  contribute  by 
the  caution  which  every  drain  of  gold  naturally  excited.  Un- 
der the  present  system,  the  former  of  these  remedies  must  be 
expected  more  and  more  to  fail,  the  guineas  in  circulation  be- 
ing even  now  apparently  so  few  as  to  form  no  inpoitant  remit- 
tance ;  and  the  reduction  of  paper  seems  therefore  the  chief, 
if  not  the  sole  corrective,  to  be  resorted  to.  It  is  only  after 
the  Bank  shall  have  for  some  time  resumed  its  cash  payments, 
that  both  can  again  operate,  as  they  did  on  all  former  occasions 
prior  to  the  restriction. 

The  Committee  cannot  refrain  from  expressing  it  to  be  their 
opinion,  after  a  very  deliberate  consideration  of  this  part  of  the 
subject,  that  it  is  a  great  practical  error  to  suppose  that  the  ex- 
changes with  foreign  countries,  and  the  price  of  Bullion,  are 
not  liable  to  be  affjcted  by  the  amount  of  a  paper  currency, 
which  is  issued  without  the  condition  of  payment  in  specie  at 
the  will  of  the  holder.  That  the  exchanges  will  be  lowered, 
and  the  price  of  Bullion  raised,  by  an  issue  of  such  paper  to 
excess,  is  not  only  established  as  a  principle  by  the  most  emi- 
nent authorities  upon  commerce  and  finance  ;  but  its  practical 
truth  has  been  illustrated  by  the  history  of  almost  every  state 
in  modern  times  which  has  used  a  paper  currency  ;  and  in  all 
those  countries,  this  principle  has  finally  been  resorted  to  by 
their  statesmen,  as  the  best  criterion  to  judge  by,  whether  such 
currency  was  or  was  not  excessive. 

In  the  instances  which  are  most  familiar  in  the  history  of 


THE  BULLION  REPORT: 


363 


foreign  countries,  the  excess  of  paper  has  been  usually  accom- 
panied by  another  circumstance,  which  has  no  place  in  our  sit- 
uation at  present,  a  want  of  confidence  in  the  sufficiency  of 
those  funds  upon  which  the  paper  had  been  issued.  Where 
these  two  circumstances,  excess  and  want  of  confidence,  are 
conjoined,  they  will  co-operate  and  produce  their  effect  much 
more  rapidly  then  when  it  is  the  result  of  the  excess  only  of  a 
paper  of  perfectly  good  credit  ;  and  in  both  cases  an  effect  of 
the  same  sort  will  be  produced  upon  the  foreign  exchanges, 
and  upon  the  price  of  bullion.  The  most  remarkable  exam- 
ples of  the  former  kind  are  to  be  found  in  the  history  of  the 
paper  currencies  of  the  British  Colonies  in  North  America,  in 
the  early  part  of  the  last  century,  and  in  that  of  the  assignats 
of  the  French  Republic:  to  which  the  Committee  have  been 
enabled  to  add  another,  scarcely  less  remarkable,  from  the 
money  speculations  of  the  Austrian  government  in  the  last 
campaign,  which  will  be  found  in  the  Appendix.  The  present 
state  of  the  currency  of  Portugal  affords,  also,  an  instance  of 
the  same  kind. 

Examples  of  the  other  sort,  in  which  the  depreciation  was 
produced  by  excess  alone,  may  be  gathered  from  the  experi- 
ence   of  the  United  Kingdom  at  different  times. 

In  Scotland,  about  the  end  of  the  seven  years'  war,  banking 
was  carried  to  a  very  great  excess  ;  and  by  a  practice  of  inserting 
in  their  promissory  notes  an  optional  clause  of  paying  at  sight, 
or  in  six  months  after  sight  with  interest,  the  convertibility  of 
such  notes  into  specie  at  the  will  of  the  holder  was  in  effect  sus- 
pended. These  notes  accordingly  became  depreciated  in  com- 
parison with  specie  ;  and  while  this  abuse  lasted,  the  exchange 
between  London  and  Dumfries,  for  example,  was  sometimes 
four  per  cent,  against  Dumfries,  while  the  exchange  between 
London  and  Carlisle,  which  is  not  thirty  miles  distant  from  Dum- 
fries, was  at  par.  The  Edinburgh  banks,  when  any  of  their 
paper  was  brought  in  to  be  exchanged  for  bills  on  London, 
were  accustomed  to  extend  or  contract  the  date  of  the  bills 
they  gave,  according  to  the  state  of  the  exchange,  diminishing 
in  this  manner  the  value  of  those  bills,  nearly  in  the  same  de- 
gree in  which  the  excessive  issue  had  caused  their  paper  to  be 
depreciated.  This  excess  of  paper  was  at  last  removed  by 
granting  bills  on  London  at  a  fixed  date  ;  for  the  paynent  of  which 
bills,  or  in  other  words,  for  the  payment  of  which  excess  of 
paper,  it  was  necessary  in  the  first  instance  to  provide,  by 
placing  large  pecuniary  funds  in  the  hands  of  their  London 
correspondents.     In  aid  of  such  precautionary  measures  on  the 


364  APPENDIX. 

part  of  the  Edinburgh  banks,  an  act  of  Parliament  prohibited 
the  optional  clauses,  and  suppressed  ten  and  five  shilling  notes. 
The  exchange  between  England  and  Scotland  was  speedily  re- 
stored to  its  natural  rate  :  and  bills  on  London  at  a  fixed  date 
having  ever  since  been  given  in  exchange  for  the  circulating 
notes  of  Scotland,  all  material  excess  of  Scottish  paper  above 
Bank  of  England  has  been  prevented,  and  the  exchange  has, 
been  stationary. 

The  experience  of  the  Bank  of  England  itself,  within  a  very 
short  period  after  its  first  establishment,  furnishes  a  very  in- 
structive illustration  of  all  the  foregoing  principles  and  reason- 
ings. In  this  instance,  the  effects  of  a  depreciation  of  the  coin, 
by  wear  and  clipping,  were  coupled  with  the  effect  of  an  ex- 
cessive issue  of  paper.*  The  Directors  of  the  Bank  of  England 
did  not  at  once  attain  a  very  accurate  knowledge  of  all  the 
principles  by  which  such  an  institution  must  be  conducted. 
They  lent  money  not  only  by  discount,  but  upon  real  securities, 
mortgages,  and  even  pledges  of  commodities  not  perishable  ; 
at  the  same  time,  the  Bank  contributed  most  materially  to  the 
service  of  government  for  the  support  of  the  army  upon  the  Con- 
tinent. By  the  liberality  of  these  loans  to  private  individuals,  as 
well  as  by  the  la.  ge  advances  to  government,  the  quantity  of 
the  notes  of  the  Lank  became  excessive,  their  relative  value 
was  depreciated,  and  they  fell  to  a  discount  of  17  per  cent. 
At  this  time  there  appears  to  have  been  no  fiilure  of  the  pub- 
lic confidence  in  the  funds  of  the  Bank  ;  for  its  stock  sold  for 
no  per  cent.,  though  only  60  per  cent,  upon  the  subscriptions 
had  been  paid  in.  By  the  conjoint  effect  of  this  depreciation 
of  the  paper  of  the  Bank  from  excess,  and  of  the  depreciation 
of  the  silver  coin  from  wear  and  clipping,  the  price  of  gold 
bullion  was  so  much  raised,  that  guineas  were  as  high  as  30s.  ;  all 
that  had  remained  of  good  silver  gradually  disappeared  from  the 
circulation  ;  and  the  exchange  with  Holland,  which  had  been 
before  a  little  affected  by  the  remittances  for  the  army,  sunk 
as  low  as  25  per  cent,  under  par,  when  the  Bank  \  notes  were 


*  See  a  short  account  of  the  Bank  by  Mr.  Godfrey,  one  of  the  original 
Directors;  and  a  Short  History  of  the  Last  Parliament,  1699,  by  Dr. 
Drake  ;  both  in  Lord  Somers'  Collection  of  Tracts. 

f  Macleod  (Diet,  of  P.  E.  I.  303)  takes  exception  to  this  statement,  and 
in  the  form  in  which  it  stands,  it  is  liable  to  be  misunderstood.  The  his- 
tory of  American  currency  shows  how  much  nominal  convertibility  may  dif- 
fer from  actual  convertibility,  but  notes  cannot  fall  to  17  per  cent,  discount, 
while  the  Bank  offers  to  pay  on  demand.  The  Bank  stopped  payment  in 
May,  1696,  and  then  its  notes  fell  to  the  discount  named. 


"  THE  BULLION  REPORT:'  365 

at  a  discount  of  17  per  cent.  Several  expedients  were  tried, 
both  by  Parliament  and  by  the  Bank,  to  force  abetter  silver  coin 
into  circulation,  and  to  reduce  the  price  of  guineas,  but  with- 
out effect.  At  length  the  true  remedies  were  resorted  to  :  first, 
by  a  new  coinage  of  silver,  which  restored  that  part  of  the  cur-  r 
rency  to  its  standard  value,  though  the  scarcity  of  money  occa- 
sioned by  calling  in  the  old  coin  brought  the  Bank  into 
straits,  and  even  for  a  time  affected  its  credit ;  secondly,  by 
taking  out  of  the  circulation  the  excess  of  Bank  notes.  This 
last  operation  appears  to  have  been  effected  very  judiciously. 
Parliament  consented  to  enlarge  the  capital  stock  of  the  Bank, 
but  annexed  a  condition,  directing  that  a  certain  proportion  of 
the  new  subscriptions  should  be  made  good  in  Bank  notes.  In 
proportion  to  the  amount  of  notes  sunk  in  this  manner,  the 
value  of  those  which  remained  in  circulation  began  pres- 
ently to  rise  ;  in  a  short  time  the  notes  were  at  par,  and  the 
foreign  exchanges  nearly  so.  These  details  are  all  very  fully 
mentioned  in  authentic  tracts  published  at  the  time,  and  the 
case  appears  to  your  Committee  to  afford  much  instruction 
upon  the  subject  of  their  present  inquiry. 

Your  Committee  must  next  refer  to  the  confirmation  and 
sanction  which  all  their  reasonings  receive  from  the  labours  of 
the  Committee  of  this  House,  which  was  appointed  in  a  former 
Parliament  to  examine  into  the  causes  of  the  great  depreciation 
of  the  Irish  exchange  with  England  in  1804.  Most  of  the  mer- 
cantile persons  who  gave  evidence  before  that  Committee,  in- 
cluding two  Directors  of  the  Bank  of  Ireland,  were  unwilling  to 
admit  that  the  fall  of  the  exchange  was  in  any  degree  to  be  as- 
cribed to  an  excess  of  the  paper  currency  arising  out  of  the  re- 
striction of  1797  ;  the  whole  fall  in  that  case,  as  in  the  pres- 
ent, was  referred  to  an  unfavourable  balance  of  trade  or  of 
payments  ;  and  it  was  also  then  affirmed,  that  "  notes  issued 
only  in  proportion  to  the  demand,  in  exchange  for  good  and 
convertible  securities,  payable  at  specific  periods,  could  not 
tend  to  any  excess  in  the  circulation,  or  to  any  depreciation." 
This  doctrine,  though  more  or  less  qualified  by  some  of  the 
witnesses,  pervades  most  of  the  evidence  given  before  that 
Committee,  with  the  remarkable  exception  of  Mr.  Mansfield, 
whose  knowledge  of  the  effects  of  that  over  issue  of  Scotch 
paper,  which  has  just  been  mentioned,  led  him  to  deliver  a 
more  just  opinion  on  the  subject.  Many  of  the  witnesses  be- 
fore the  Committee,  however  unwilling  to  acknowledge  the 
real  nature  of  the  evil,  made  important  concessions,  which 
necessarily  involved  them  in  inconsistency.     They  could  not, 


366 


APPENDIX. 


as  practical  men,  controvert  the  truth  of  the  general  position, 
that  "the  fluctuations  of  exchange  between  two  countries  are 
generally  limited  by  the  price  at  which  any  given  quantity  of 
bullion  can  be  purchased  in  the  circulating  medium  of  the 
debtor  country,  and  converted  into  the  circulating  medium  of 
the  creditor  country,  together  with  the  insurances  and  charges 
of  transporting  it  from  the  one  to  the  other."  It  was  at  the 
same  time  admitted,  that  the  expense  of  transporting  gold 
from  England  to  Ireland,  including  insurance,  was  then  under 
one  per  cent.  ;  that  before  the  restriction,  the  fluctuations  had 
never  long  and  much  exceeded  this  limit ;  and,  moreover,  at 
the  exchange  with  Belfast,  where  guineas  freely  circulated  at 
the  time  of  the  investigation  by  that  Committee  was  then  i\  in 
favor  of  Ireland,  while  the  exchange  with  Dublin,  where  only 
paper  was  in  use,  was  10/.  per  cent,  against  that  country.  It 
also  appeared  from  such  imperfect  documents  as  it  was  practi- 
cable to  furnish,  that  the  balance  of  trade  was  then  favourable 
to  Ireland.  Still,  however,  it  was  contended,  that  there  was  no 
depreciation  of  Irish  paper,  that  there  was  a  scarcity  and  conse- 
quent high  price  of  gold,  and  that  the  diminution  of  Irish  paper 
would  not  rectify  the  exchange.  "  The  depreciation  of  Bank 
paper  in  Ireland"  (it  was  said  by  one  of  the  witnesses,  a 
Director  of  the  Bank  of  Ireland)  "is  entirely  a  relative  term 
with  respect  to  the  man  who  buys  and  sells  in  Dublin  by  that 
common  medium  :  to  him  it  is  not  depreciated  at  all  ;  but  to  the 
purchaser  of  a  bill  on  London,  to  him  in  that  relation,  and  un- 
der that  circumstance,  there  is  a  depreciation  of  10  per  cent." 
By  thus  avoiding  all  comparison  with  a  view  to  the  point  in 
issue  between  the  value  of  their  own  paper  and  that  of  either 
the  then  circulating  medium  of  this  country  or  of  gold  bullion, 
or  even  of  gold  coin  then  passing  at  a  premium  in  other  parts 
of  Ireland,  they  appear  to  have  retained  a  confident  opinion, 
that  no  depreciation  of  Irish  paper  had  taken  place. 

It  is  further  observable,  that  the  value  of  a  considerable 
quantity  of  dollars  put  into  circulation  by  the  Bank  of  Ireland 
at  this  period  was  raised  to  5^.  a  dollar,  for  the  professed  pur- 
pose of  rendering  the  new  silver  coin  conformable  to  the  exist- 
ing state  of  the  exchange,  a  circumstance  on  which  the  Commit- 
tee animadverted  in  their  Report,  and  which  serves  to  show  that 
the  Irish  paper  currency  could  not  stand  a  comparison  with  the 
standard  price  of  silver,  any  more  than  with  that  of  gold  bul- 
lion, with  gold  in  coin,  or  with  the  then  paper  currency  of 
this  kingdom. 

A  fact  was  mentioned  to  that  Committee  on  the  evidence 


"THE   BULLION  REPORTr  367VY 

of  Mr.  Colville,  a  Director  of  the  Rank  of  Ireland,  which 
though  it  carried  no  conviction  to  his  mind  of  the  tendency  of 
a  limitation  of  paper  to  lower  exchanges,  seems  very  deci- 
sive on  this  point.  He  stated  that  in  1753  an<^  I754>  tne 
Dublin  exchange  being  remarkably  unfavourable,  and  the 
notes  of  the  Dublin  Bank  being  suddenly  withdrawn,  the 
exchange  became  singularly  favourable.  The  mercantile  dis- 
tress produced  on  that  occasion  was  great,  through  the  sudden- 
ness of  the  operation,  for  it  was  effected,  not  by  the  gradual 
and  prudential  measures  of  the  several  Banks,  but  through  the 
violent  pressure  which  their  unguarded  issues  bad  brought 
upon  them.  The  general  result,  however,  is  not  the  less 
observable. 

With  a  view  to  the  further  elucidation  of  the  subject  of  the 
Irish  exchanges,  which  so  lately  attracted  the  attention  of  Par- 
liament, it  may  be  proper  to  remark  that  Ireland  has  no  deal- 
ings in  exchange  with  foreign  countries,  except  through  Lon- 
don, and  that  the  payments  from.  Ireland  to  the  Continent  are 
consequently  converted  into  English  currency,  and  then  into 
the  currency  of  the  countries  to  which  Ireland  is  indebted.  \\\ 
the  spring  of  T804  the  Exchange  of  England  with  the  Conti- 
nent was  above  par,  and  the  Exchange  of  Ireland  was  in  such 
a  state  that  118/.  \os.  of  the  notes  of  the  Bank  of  Ireland 
would  purchase  only  100/.  of  those  of  the  Bank  of  England. 
Therefore,  if  the  notes  of  the  Bank  of  Ireland  were  not  depre- 
ciated, and  it  was  so  maintained,  it  followed  that  the  notes  of 
the  Bank  of  England  were  at  more  than  to  per  cent,  premium 
above  the  standard  coin  of  the  two  countries. 

The  principles  laid  down  by  the  Committee  of  1804,  had 
probably  some  weight  with  the  Directors  of  the  Bank  of  Ire- 
land ;  for  between  the  period  of  their  Report  (June,  1804)  and 
January,  1806,  the  circulation  of  the  notes  of  the  Bank  of  Ire- 
land was  gradually  (though  with  small  occasional  fluctuations) 
reduced  from  about  three  millions  to  2,410,000/.,  being  a  diminu- 
tion of  nearly  one  fifth  ;  at  the  same  time,  all  the  currency  \\hich 
had  been  issued  under  the  name  of  silver  tokens,  was  by  law 
suppressed.  The  paper  currency,  both  of  the  Bank  of  England 
and  of  the  English  country  Banks,  seems  during  the  same 
period  to  have  gradually  increased.  The  combination  of  these 
two  causes  is  likely  to  have  had  a  material  effect  in  restoring 
to  par  the  Irish  exchange  with  England. 

The  Bank  of  Ireland  has  again  gradually  enlarged  its  issues 
to  about  3,100,000/.,  being  somewhat  higher  than  they  stood 
in    1804,  an   increase   probably  not    disproportionate  to  that 


368 


APPENDIX. 


which  has  occurred  in  England  within  the  same  period.  Per- 
haps, however,  it  ought  not  to  be  assumed,  that  the  diminution 
of  issues  of  the  Bank  of  Ireland  between  1804  an(l  1806,  would 
produce  a  corresponding  reduction  in  the  issues  of  private 
Banks  in  Ireland,  exactly  in  the  same  manner  in  which  a  dim- 
inution of  Bank  of  England  paper  produces  that  effect  on  the 
country  banks  in  Great  Britain  ;  because  the  Bank  of  Ireland  does 
not  possess  the  same  exclusive  power  of  supplying  any  part  of 
that  country  with  a  paper  currency,  which  the  Bank  of  England 
enjoys  in  respect  to  the  metropolis  of  the  empire.  The  Bank 
of  England,  by  restricting  the  quantity  of  this  necessary  article 
in  that  important  quarter,  can  more  effectually  secure  the  im- 
provement of  its  value ;  and  every  such  improvement  must 
necessarily  lead,  by  a  corresponding  diminution  in  amount,  to 
a  similar  augmentation  of  the  value  of  country  Bank  paper  ex- 
changeable for  it.  That  the  same  diminution  of  the  circulation 
of  private  Banks  took  place  in  Ireland  is  more  than  probable, 
for  the  p  ivate  Banks  in  Ireland  are  accustomed  to  give  Bank 
of  Ireland  paper  for  their  own  circulating  notes  when  required 
to  do  so,  and  therefore  could  not  but  feel  the  effect  of  any  new 
limitation  of  that  paper  for  which  their  own  was  exchangeable. 

It  is  due,  however,  in  justice  to  the  present  Directors  of  the 
Bank  of  England,  to  remind  the  House  that  the  suspension 
of  their  cash  payments,  though  it  appears  in  some  degree  to 
have  originated  in  a  mistaken  view  taken  by  the  Bank  of  the 
peculiar  difficulties  of  that  time  was  not  a  measure  sought  for 
by  the  Bank,  but  imposed  upon  it  by  the  Legislature  for  what 
were  held  to  be  urgent  reasons  of  state  policy  and  public  ex- 
pediency. And  it  ought  not  to  be  urged  as  matter  of  charge 
against  the  Directors,  if  in  this  novel  situation  in  which  their 
commercial  company  was  placed  by  the  law,  and  entrusted  with 
the  regulation  and  control  of  the  whole  circulating  medium  of  the 
country,  they  were  not  fully  aware  of  the  principles  by  which 
so  delicate  a  trust  should  be  executed,  but  continued  to  con- 
duct their  business  of  discounts  and  advances  according  to 
their  former  routine. 

It  is  important  at  the  same  time,  to  observe,  that  under  the 
former  system,  when  the  Bank  was  bound  to  answer  its  notes 
in  specie  upon  demand,  the  state  of  the  foreign  exchanges  and 
the  price  of  gold  did  most  materially  influence  its  conduct  in 
the  issue  of  those  notes,  though  it  was  not  the  practice  of  the 
Directors  systematically  to  watch  either  the  one  or  the  other. 
So  long  as  gold  was  demandable  for  their  paper,  they  were 
speedily  apprised  of  a  depression  of  the  exchange,  and  a  rise  in 


"  THE  BULLION  REPORT."  369 

the  price  of  gold,  by  a  run  upon  them  for  that  article.  If  at 
any  time  they  incautiously  exceeded  the  proper  limit  of  their 
advances  and  issues,  the  paper  was  quickly  brought  back  to 
them,  by  those  who  were  tempted  to  profit  by  the  market  price 
of  gold  or  by  the  rate  of  exchange.  Jn  this  manner  the  evil 
soon  cured  itself.  The  Directors  of  the  Bank  having  their  ap- 
prehensions excited  by  the  reduction  of  their  stock  of  gold,  and 
being  able  to  replace  their  loss  only  by  reiterated  purchases 
of  bullion  at  a  very  losing  price,  naturally  contracted  their 
issues  of  paper,  and  thus  gave  to  the  remaining  paper,  as  well 
as  to  the  coin  for  which  it  was  interchangeable,  an  increased 
value,  while  the  clandestine  exportation  either  of  the  coin,  or 
the  gold  produced  from  it,  combined  in  improving  the  state  of 
the  exchange  and  in  producing  a  corresponding  diminution  of 
the  difference  between  the  market  price  and  Mint  price  of  gold, 
or  of  paper  convertible  into  gold. 

Your  Committee  do  not  mean  to  represent  that  the  manner 
in  which  this  effect  resulted  from  the  conduct  which  they  have 
described,  was  distinctly  perceived  by  the  Bank  Directors.  The 
fact  of  limiting  their  paper  as  often  as  they  experienced  any 
great  drain  of  gold,  is,  however,  unquestionable.  Mr.  Bosanquet 
stated,  in  his  evidence  before  the  secret  Committee  of  the  House 
of  Lords,  in  the  year  1797,  that  in  1783,  when  the  Bank  experi- 
enced a  drain  of  cash,  which  alarmed  them,  the  Directors  took  a 
bold  step  and  refused  to  make  the  advances  on  the  loan  of  that 
year.  This,  he  said,  answered  the  purpose  of  making  a  tem- 
porary suspension  in  the  amount  of  the  drain  of  their  specie. 
And  all  the  three  Directors  who  have  been  examined  before 
your  Committee,  represent  some  restriction  of  the  Bank  issues 
as  having  usually  taken  place  at  those  periods  antecedent  to 
this  suspension  of  the  cash  payments  of  the  Bank  when  they 
experienced  any  material  run.  A  very  urgent  demand  for 
guineas,  though  arising  not  from  the  high  price  of  gold  and  the 
state  of  the  exchange,  but  from  a  fear  of  invasion,  occurred  in 
1793,  and  also  in  1797,  and  in  each  of  these  periods  the  Bank 
restrained  their  discounts,  and  consequently  also  the  amount  of 
their  notes,  very  much  below  the  demands  of  the  merchants. 
Your  Committee  question  the  policy  of  thus  limring  the  accom- 
modation in  a  period  of  alarm,  unaccompanied  with  an  un- 
favorable exchange  and  high  price  of  bullion  ;  but  they  consider 
the  conduct  of  the  Bank  at  the  two  last  mentioned  periods,  as 
affording  illustration  of  their  general  disposition,  antecedently 
to  1797,  to  contract  their  loans  and  their  paper,  when  they 
found  their  gold  to  be  taken  from  them. 
16* 


37° 


APPENDIX. 


It  was  a  necessary  consequence  of  the  suspension  of  cash 
payments,  to  exempt  the  Bank  from  that  drain  of  gold,  which, 
in  former  times,  was  sure  to  result  from  an  unfavorable 
exchange  and  a  high  price  of  bullion.  And  the  Directors, 
released  from  all  fears  of  such  a  drain,  and  no  longer  feeling 
any  inconvenience  from  such  a  state  of  things,  have  not  been 
prompted  to  restore  the  exchanges  and  the  price  of  gold  to  their 
proper  level  by  a  reduction  of  their  advances  and  issues.  The 
Directors,  in  former  times,  did  not  perhaps  perceive  and 
acknowledge  the  principle  more  distinctly  than  those  of  the 
present  day,  but  they  felt  the  inconvenience,  and  obeyed  its 
impulse  ;  which  practically  established  a  check  and  limitation 
to  the  issue  of  paper.  In  the  present  times  the  inconvenience 
is  not  felt  ;  and  the  check,  accordingly,  is  no  longer  in  force. 

But  your  Committee  beg  leave  to  report  it  to  the  House  as 
their  most  clear  opinion,  that  so  long  as  the  suspension  of  cash 
payments  is  permitted  to  subsist,  the  price  of  gold  bullion  and 
the  general  course  of  exchange  with  foreign  countries,  taken  for 
any  considerable  period  of  time,  form  the  best  general  criterion 
from  which  any  inference  can  be  drawn,  as  to  the  sufficiency  or 
excess  of  paper  currency  in  circulation  ;  and  that  the  Bank  of 
England  cannot  safely  regulate  the  amount  of  its  issues,  without 
having  reference  to  the  criterion  presented  by  these  two  circum- 
stances. And  upon  a  review  of  all  the  facts  and  reasonings 
which  have  already  been  stated,  your  Committee  are  further  of 
opinion,  that,  although  the  commercial  state  of  this  country, 
and  the  political  state  of  the  continent,  may  have  had  some 
influence  on  the  high  price  of  gold  bullion  and  the  unfavourable 
course  of  exchange  with  foreign  countries,  this  price,  and  this 
depreciation,  are  also  to  be  ascribed  to  the  want  of  a  perma- 
nent check,  and  a  sufficient  limitation  of  the  paper  currency  in 
this  country. 

0  in  connection  with  the  general  subject  of  this  part  of  their 
report,  the  policy  of  the  Bank  of  England  respecting  the 
amount  of  their  circulation,  your  Committee  have  now  to  call 
the  attention  of  the  House  to  another  topic,  which  was  brought 
under  their  notice  in  the  course  of  their  inquiry,  and  which  in 
their  judgment  demands  the  most  serious  consideration.  The 
Bank  Directors,  as  well  as  some  of  the  merchants  who  have 
been  examined,  shewed  a  great  anxiety  to  state  to  your  Com- 
mittee a  doctrine,  of  the  truth  of  which  they  professed  them- 
selves to  be  most  thoroughly  convinced,  that  there  can  be  no 
possible  excess  in  the  issue  of  Bank  of  England  paper,  so  long 
as  the  advances  in  which  it  is  issued  are  made  upon  the  princi- 


THE  BULLION  REPORT." 


371 


pies  which  at  present  guide  the  conduct  of  the  Directors,  that 
is,  so  long  as  the  discount  of  mercantile  bills  are  confined  to 
paper  of  undoubted  solidity,  arising  out  of  real  commercial 
transactions,  and  payable  at  short  and  fixed  periods.  That  the 
discounts  should  be  made  only  upon  bills  growing  out  of  real 
commercial  transactions,  and  falling  due  in  a  fixed  and  short 
period,  are  sound  and  well-established  principles.  But  that, 
while  the  Bank  is  restrained  from  paying  in  specie,  there  need 
be  no  other  limit  to  the  issue  of  their  paper  than  what  is  fixed 
by  such  rules  of  discount,  and  that  during  the  suspension  of 
cash  payments  the  discount  of  good  bills  falling  due  at  short 
periods  cannot  lead  to  any  excess  in  the  amount  of  bank  paper 
in  circulation,  appears  to  your  Committee  to  be  a  doctrine 
wholly  erroneous  in  principle,  and  pregnant  with  dangerous 
consequences  in  practice. 

But  before  your  Committee  proceed  to  make  such  observa- 
tions upon  this  theory  as  it  appears  to  them  to  deserve,  they 
think  it  right  to  shew  from  the  evidence,  to  what  extent  it  is 
entertained  by  some  of  those  individuals  who  have  been  at  the 
head  of  the  affairs  of  the  Bank.  The  opinions  held  by  those 
individuals  are  likely  to  have  an  important  practical  influence  ; 
and  appeared  to  your  Committee,  moreover,  the  best  evidence 
of  what  has  constituted  the  actual  policy  of  that  establishment 
in  its  corporate  capacity. 

Mr.  Whitmore,  the  late  Governor  of  the  Bank,  expressly 
states,  "  The  Bank  never  force  a  note  in  circulation,  and  there 
will  not  remain  a  note  in  circulation  more  than  the  immediate 
wants  of  the  public  require  ;  for  no  banker,  I  presume,  will 
keep  a  larger  stock  of  bank  notes  by  him  than  his  immediate 
payments  require,  as  he  can  at  all  times  procure  them."  The 
reason  here  assigned  is  more  particularly  explained  by  Mr. 
Whitmore,  when  he  says,  "The  Bank  notes  would  revert  to  us 
if  there  was  a  redundancy  in  circulation,  as  no  one  would  pay 
interest  for  a  bank  note  that  he  did  not  want  to  make  use  of." 
Mr.  Whitmore  further  states,  "The  criterion  by  which  1  judge 
of  the  exact  proportion  to  be  maintained  between  the  occa- 
sions of  the  public,  and  the  issues  of  the  Bank,  is  by  avoiding 
as  much  as  possible  to  discount  what  does  not  appear  to  be 
legitimate  mercantile  paper."  And  further  when  asked,  What 
measure  the  court  of  Directors  has  to  judge  by,  whether  the 
quantity  of  bank  notes  out  in  circulation  is  at  any  time  exces- 
sive ?  Mr.  Whitmore  states,  that  their  measure  of  the  security 
or  abundance  of  bank  notes  is  certainly  by  the  greater  or  less 
application  that  is  made  to  them  for  the  discount  of  good  paper. 


372. 


APPENDIX. 


Mr.  Pearse,  late  Deputy-Governor,  and  now  Governor  of  the 
Bank,  stated  very  distinctly  his  concurrence  in  opinion  with  Mr. 
Whitmore  upon  this  particular  point.  He  referred  "  to  the 
manner  in  which  bank  notes  are  issued,  resulting  from  the  ap- 
plications made  for  discounts  to  supply  the  necessary  want  of 
bank  notes,  by  which  their  issue  in  amount  is  so  controlled 
that  it  can  never  amount  to  an  excess."  He  considers  "  the 
amount  of  the  bank  notes  in  circulation  as  being  controlled  by 
the  occasions  of  the  public,  for  internal  purposes,"  and  that, 
"  from  the  manner  in  which  the  issue  of  bank  notes  is  con- 
trolled, the  public  will  never  call  for  more  than  is  absolutely 
necessary  for  their  wants." 

Another  Director  of  the  Bank,  Mr.  Harman,  being  asked,  If 
he  thought  that  the  sum  total  of  discounts  applied  for,  even 
though  the  accommodation  afforded  should  be  on  the  security 
of  good  bills  to  safe  persons,  might  be  such  as  to  produce 
some  excess  in  the  quantity  of  the  Bank  issues,  if  fully  com- 
plied with  ?  he  answered,  "  I  think  if  we  discount  only  for  solid 
persons,  and  such  paper  as  is  for  real  bona-fide  transactions, 
we  cannot  materially  err."  And  he  afterwards  states,  that  what 
he  should  consider  as  the  test  of  a  superabundance  would  be, 
"  money  being  more  plentiful  in  the  market." 

It  is  material  to  observe,  that  both  Mr.  Whitmore  and  Mr. 
Pearse  state  that  "  the  Bank  does  not  comply  with  the  whole 
demand  upon  them  for  discounts,  and  that  they  are  never  in- 
duced, by  a  view  to  their  own  profit,  to  push  their  issues  be- 
yond what  they  deem  consistent  with  the  public  interest." 

Another  very  important  part  of  the  evidence  of  these  gen- 
tlemen upon  this  point,  is  contained  in  the  following  ex- 
tract : 

"  Is  it  your  opinion  that  the  same  security  would  exist  against 
any  excess  in  the  issues  of  the  Bank,  if  the  rate  of  the  discount 
were  reduced  from  5/.  to  4/.  per  cent.  ?  "  Answer. — "  The 
security  of  an  excess  of  issue  would  be,  I  conceive,  precisely 
the  same."     Mr.  Pearse. — "  I  concur  in  that  answer." 

"  If  it  were  reduced  to  3/.  per  cent.  ?  " — Mr.  Whitmore. — "  I 
conceive  there  would  be  no  difference  if  our  practice  remained 
the  same  as  now,  of  not  forcing  a  note  into  circulation."  Mr. 
Pearse. — "  I  concur  in  that  answer." 

Your  Committee  cannot  help  again  calling  the  attention  of 
the  House  to  the  view  which  this  evidence  presents,  of  the 
consequences  which  have  resulted  from  the  peculiar  situation 
in  which  the  Bank  of  England  was  placed  by  the  suspension  of 
cash  payments.     So  long  as  the  paper  of  the  Bank  was  con- 


"THE  BULLION  REPORT? 


373 


vertible  into  specie  at  the  will  of  the  holder,  it  was  enough, 
both  for  the  safety  of  the  Bank  and  for  the  public  interest  in 
what  regarded  its  circulating  medium,  that  the  Directors  at- 
tended only  to  the  character  and  quality  of  the  bills  discounted, 
as  real  ones  and  payable  at  lixed  and  short  periods.  They  could 
not  much  exceed  the  proper  bounds  in  respect  of  the  quantity 
and  amount  of  bills  discounted,  so  as  thereby  to  produce  an  ex- 
cess of  their  paper  in  circulation,  without  quickly  finding  that 
the  surplus  returned  upon  themselves  in  demand  for  specie. 
The  private  interest  of  the  Bank  to  guard  themselves  against 
a  continued  demand  of  that  nature,  was  a  sufficient  protection 
for  the  public  against  any  such  excess  of  Bank  paper  as 
would  occasion  a  material  fall  in  the  relative  value  of  the  cir- 
culating medium.  The  restriction  of  cash  payments,  as  has 
already  been  shown,  having  rendered  the  same  preventive 
policy  no  longer  necessary  to  the  Bank,  has  removed  that  check 
upon  its  issues  which  was  the  public  security  against  an 
excess.  When  the  Bank  Directors  were  no  longer  exposed  to 
the  inconvenience  of  a  drain  upon  them  for  gold,  they  naturally 
felt  that  they  had  no  such  inconvenience  to  guard  against  by  a 
mote  restrained  system  of  discounts  and  advances  ;  and  it  was 
very  natural  for  them  to  pursue,  as  before  (but  without  that  sort 
of  guard  and  limitation  which  was  now  become  unnecessary  to 
their  own  security),  the  same  liberal  and  prudent  system  of 
commercial  advances  from  which  the  prosperity  of  their  own 
establishment  had  resulted,  as  well  as  in  a  great  degree  the 
commercial  prosperity  of  the  whole  country.  It  was  natural 
for  the  Bank  Directors  to  believe,  that  nothing  but  benefit 
could  accrue  to  the  public  at  large,  while  they  saw  the  growth 
of  Bank  profits  go  hand  in  hand  with  the  acommodations 
granted  to  the  merchants.  It  was  hardly  to  be  expected  of 
the  Directors  of  the  Bank,  that  they  should  be  fully  aware  of 
the  consequences  that  might  result  from  their  pursuing,  after 
the  suspension  of  cash  payments,  the  same  system  which  they 
had  found  a  safe  one  before.  To  watch  the  operation  of  so  new 
a  law,  and  to  provide  against  the  injury  which  might  result  from 
it  to  the  public  interests,  was  the  province,  not  so  much  of  the 
Bank  as  of  the  Legislature  :  and,  in  the  opinion  of  your  Com- 
mittee, there  is  room  to  regret  that  this  House  has  not  taken 
earlier  notice  of  all  the  consequences  of  that  law. 

By  far  the  most  important  of  those  consequences  is,  that 
while  the  convertibility  into  specie  no  longer  exists  as  a  check 
to  an  overissue  of  paper,  the  Bank  Directors  have  not  per- 
ceived that  the  removal  of  that  check  rendered  it  possible  that 


374 


APPENDIX. 


such  an  excess  might  be  issued  by  the  discount  of  perfectly 
good  bills.  So  far  from  perceiving  this,  your  Committee  have 
shown  that  they  maintain  the  contrary  doctrine  with  the 
utmost  confidence,  however  it  may  be  qualified  occasionally 
by  some  of  their  expressions.  That  this  doctrine  is  a  very 
fallacious  one,  your  Committee  cannot  entertain  a  doubt.  The 
fallacy,  upon  which  it  is  founded,  lies  in  not  distinguishing  be- 
tween an  advance  of  capital  to  merchants,  and  an  addition  of 
^  supply  of  currency  to  the  general  mass  of  circulating  medium. 
If  the  advance  of  capital  only  is  considered,  as  made  to  those 
who  are  ready  to  employ  it  in  judicious  and  productive  under- 
takings, it  is  evident  there  need  be  no  other  limit  to  the  total 
amount  of  advances  than  what  the  means  of  the  lender,  and 
his  prudence  in  the  selection  of  borrowers,  may  impose.  But 
in  the  present  situation  of  the  Bank,  intrusted  as  it  is  with  the 
function  of  supplying  the  public  with  that  paper  currency 
which  forms  the  basis  of  our  circulation,  and  at  the  same  time 
not  subjected  to  the  liability  of  converting  the  paper  into  specie, 
every  advance  which  it  makes  of  capital  to  the  merchants 
in  the  shape  of  discount,  becomes  an  addition  also  to  the  mass  of 
circulating  medium.  In  the  first  instance,  when  the  advance 
is  made  by  notes  paid  in  discount  of  a  bill,  it  is  undoubtedly 
so  much  capital,  so  much  power  of  making  purchases,  placed 
in  the  hands  of  the  merchant  who  receives  the  notes  ;  and  if 
those  hands  are  safe,  the  operation  is  so  far,  and  in  this  its 
first  step,  useful  and  productive  to  the  public.  But  as  soon  as 
the  portion  of  circulating  medium  in  which  the  advance 
was  thus  made  performs  in  the  hands  of  him  to  whom  it  was 
advanced  this  its  first  operation  as  capital,  as  soon  as  the  notes 
are  exchanged  by  him  for  some  other  article  which  is  capital, 
they  fall  into  the  channel  of  circulation  as  so  much  circulat- 
ing medium,  and  form  an  addition  to  the  mass  of  currency. 
The  necessary  effect  of  every  such  addition  to  the  mass  is  to 
diminish  the  relative  value  of  any  given  portion  of  that  mass 
in  exchange  for  commodities.  If  the  addition  were  made  by 
notes  convertible  into  specie,  this  diminution  of  the  relative 
value  of  any  given  portion  of  the  whole  mass  would  speedily 
bring  back  upon  the  Bank  which  issued  the  notes  as  much 
as  was  excessive.  But  if  by  law  they  are  not  so  convertible, 
of  course  this  excess  will  not  be  brought  back,  but  will  remain 
in  the  channel  of  circulation,  until  paid  in  again  to  the  Bank 
itself  in  discharge  of  the  bills  which  were  originally  discounted. 
During  the  whole  time  they  remain  out,  they  perform  all  the 
functions  of  circulating  medium  ;  and  before  they  come  to  be 


11211,      ID  ^JJ^J^IUJ.'J      l±J-L,r  win  . 


375 


paid  in  discharge  of  those  bills,  they  have  already  been  fol- 
lowed by  a  new  issue  of  notes  in  a  similar  operation  of  dis- 
counting. Each  successive  advance  repeats  the  same  process, 
If  the  whole  sum  of  discounts  continues  outstanding  at  a  given 
amount,  there  will  remain  permanently  out  in  circulation  a 
corresponding  amount  of  paper  ;  and  if  the  amount  of  discounts 
is  progressively  increasing,  the  amount  of  paper,  which  remains 
out  in  circulation  over  and  above  what  is  otherwise  wanted  for 
the  occasions  of  the  public,  will  progressively  increase  also,  and 
the  money  prices  of  commodities  will  progressively  rise.  This 
progress  may  be  as  indefinite,  as  the  range  of  speculation  and 
adventure  in  a  great  commercial  country. 

It  is  necessary  to  observe,  that  the  law,  which  in  this  coun- 
try limits  the  rate  of  interest,  and  of  course  the  rate  at  which 
the  Bank  can  legally  discount,  exposes  the  Bank  to  still  more 
extensive  demands  for  commercial  discoun's.  While  the  rate  of 
commercial  profit  is  very  considerably  higher,  than  five  percent., 
as  it  has  lately  been  in  many  branches  of  our  foreign  trade,  there  is 
in  fact  no  limit  to  the  demands  which  merchants  of  perfectly 
good  capital,  and  of  the  most  prudent  spirit  of  enterprise,  may 
be  tempted  to  make  upon  the  Bank  for  accommodation  and 
facilities  by  discount.  Nor  can  any  argument  or  illustration 
place  in  a  more  striking  point  of  view  the  extent  to  which  such 
of  the  Bank  Directors  as  were  examined  before  the  Commit- 
tee, seem  to  have  in  theory  embraced  that  doctrine  upon  which 
your  Committee  have  made  these  observations,  as  well  as  the 
practical  consequences  to  which  that  doctrine  may  lead  in  pe- 
riods of  a  high  spirit  of  commercial  adventure,  than  the  opin- 
ion which  Mr.  Whitmore  and  Mr.  Pearse  have  delivered;  that 
the  same  complete  security  to  the  public  against  any  excess  in 
the  issues  of  the  Bank  would  exist  if  the  rate  of  discount  were 
reduced  from  five  to  four,  or  even  to  three  per  cent.  From  the 
evidence,  however,  of  the  late  Governor  and  Duputy  Governor 
of"  the  Bank  it  appears,  that  though  they  state  the  principle 
broadly,  that  there  can  be  no  excess  of  their  circulaiion  if  issued 
according  to  their  rules  of  discount,  yet  they  disclaim  the  idea 
of  acting  up  to  it  in  its  whole  extent;  though  they  stated  tne 
applications  for  the  discount  of  legitimate  bills  to  be  their  sole 
criterion  of  abundance  or  scarcity,  they  gave  jour  Committee 
to  understand  that  they  do  not  discount  to  the  full  extent  of 
iSuch  applications.  In  other  words,  the  Directors  do  not  act 
up  to  the  principle  which  they  represent  as  one  perfectly  sound 
and  safe,  and  must  be  considered,  therefore,  as  possessing  no 


276  APPENDIX. 

distinct  and  certain  rule  to  guide  their  discretion  in  control- 
ling the  amount  of  their  circulation. 

The  suspension  of  cash  payments  has  had  the  effect  of  com- 
mitting into  the  hands  of  the  Directors  of  the  Bank  of  England, 
to  be  exercised  by  their  sole  discretion,  the  important  charge 
•  of  supplying  the  country  with  that  quantity  of  circulating  me- 
dium which  is  exactly  proportioned  to  the  wants  and  occasions 
of  the  public.  In  the  judgment  of  the  Committee,  that  is  a 
trust  which  it  is  unreasonable  to  expect  that  the  Directors  of 
the  Bank  of  England  should  ever  be  able  to  discharge.  The  most 
detailed  knowledge  of  the  actual  trade  of  the  country,  combined 
with  the  profound  science  in  all  the  principles  of  money  and  cir- 
culation, would  not  enable  any  man  or  set  of  men  to  adjust,  and 
keep  always  adjusted,  the  right  proportion  of  circulating  me- 
dium in  a  country  to  the  wants  of  trade.  When  the  currency 
consists  entirely  of  the  precious  metals,  or  of  paper  convertible 
at  will  into  the  precious  metals,  the  natural  process  of  com- 
merce, by  establishing  exchanges  among  all  the  different  coun- 
tries of  the  world,  adjust,  in  every  particular  country,  the  pro- 
portion of  circulating  medium  to  its  actual  occasions,  according 
to  that  supply  of  the  precious  metals  which  the  mines  furnish 
to  the  general  market  of  the  world.  The  proportion  which  is 
thus  adjusted  and  maintained  by  the  natural  operation  of  com- 
merce, cannot  be  adjusted  by  any  human  wisdom  or  skill.  If 
the  natural  system  of  currency  and  circulation  be  abandoned, 
and  a  discretionary  issue  of  paper  money  substituted  in  its 
stead,  it  is.  vain  to  think  that  any  rules  can  be  devised  for  the 
exact  exercise  of  such  discretion  ;  though  some  cautions  may 
be  painted  out  to  check  and  control  its  consequences,  such  as 
are  indicated  by  the  effect  of  an  excessive  issue  upon  ex- 
changes and  the  price  of  gold.  The  Directors  of  the  Bank  of 
England,  in  the  judgment  of  your  Committee,  have  exercised  the 
new  and  extraordinary  discretion  reposed  in  them  since  1797,  with 
an  integrity  and  a  regard  to  the  public  interest  according  to  their 
conceptions  of  it,  and  indeed  a  degree  of  forbearance  in  turning  it 
less  to  the  profit  of  the  Bank  than  it  would  easily  have  admitted 
of,  that  merit  the  continuance  of  that  confidence  which  the  pub- 
lic has  so  long  and  so  justly  felt  in  the  integrity  with  which  its  af- 
fairs are  directed,  as  well  as  in  the  unshaken  stability  and  ample 
funds  of  that  great  establishment.  That  their  recent  policy  in- 
volves great  practical  errors,  which  it  is  of  the  utmost  public  im- 
portance to  correct,  your  Committee  are  fully  convinced  ;  but  those 
errors  are  less  to  be  imputed  to  the  Bank  Directors  than  to  be 
stated  as  the  effect  of  a  new  system,  of  which,  however  it  originate 


"THE  BULLION  REPORT."  377 

ed  or  was  rendered  necessary  as  a  temporary  expedient,  it  might 
have  been  well  if  Parliament  had  sooner  taken  into  view  all  the 
consequences.  When  your  Committee  consider  that  this  discre- 
tionary power  of  supplying  the  kingdom  with  circulating  medium 
has  been  exercised  under  an  opinion  that  the  paper  could  not  be 
issued  to  excess  if  advanced  in  discounts  to  merchants  in  good  bills 
payable  at  stated  periods,  and  likewise  under  an  opinion  that 
neither  the  price  of  bullion  nor  the  course  of  exchanges  need  be 
adverted  to,  as  affording  any  indication  with  respect  to  the  suf- 
ficiency or  excess  of  such  paper,  your  Committee  cannot  hesi- 
tate to  say  that  these  opinions  of  the  Bank  must  be  regarded  as 
in  a  great  measure  the  operative  cause  of  the  continuance  of 
the  present  state  of  things.  0 


IV. 

Your  Committee  will  now  proceed  to  state  from  the  informa- 
tion which  has  been  laid  before  them  what  appears  to  have  been 
the  progressive  increase,  and  to  be  the  present  amount  of  the 
paper  circulation  of  this  country,  consisting  primarily  of  the  notes 
of  the  Bank  of  England  not  at  present  convertible  into  specie  ; 
and,  in  a  secondary  manner,  of  the  notes  of  the  country  bankers 
which  are  convertible,  at  the  option  of  the  holder,  into  Bank  of 
England  paper.  After  having  stated  the  amount  of  Bank  of 
England  paper,  your  Committee  will  explain  the  reasons  which 
induce  them  to  think  that  the  numerical  amount  of  that  paper 
is  not  alone  to  be  considered  as  decisive  of  the  question  as  to 
its  excess:  and  before  stating  the  amount  of  country  bank 
paper,  so  far  as  that  can  be  ascertained,  your  Committee  will 
explain  their  reasons  for  thinking  that  the  amount  of  the  coun- 
try bank  circulation  is  limited  by  the  amount  of  that  of  the 
Bank  of  England. 

1.  It  appears  from  the  accounts  laid  before  the  Committees 
upon  the  Bank  affairs  in  1797,  that  for  several  years  previous 
to  the  year  1796,  the  average  amount  of  bank  notes  in  circu- 
lation was  between  10,000,000/.  and  11,000,000/.,  hardly  ever 
filling  below  9,000,000/.,  and  not  often  exceeding  to  any  great 
amount  11,000,000/. 

The  following  abstract  of  the  several  accounts  referred  to 
your  Committee,  or  ordered  by  your  Committee  from  the  Bank, 
will  show  the  progressive  increase  of  the  notes  from  the  year 
1798  to  the  end  of  the  last  year. 


37* 


APPENDIX. 


Average  amount  of  Bank  of  England  Notes  in  circulation  in 
each  of  the  following  years  : 


1798. 
1799- 
1800. 
1801. 
1802. 
1803. 
1804. 
1805. 
1806. 
1807. 
1S08. 
1809. 


Notes  of  £5  and 

upwards,  including 

Bank  Post  Bills." 


£ 

11,527,250 
12,408,522 
13,598,666 

i3>454o67 
11,917,977 
12,983,477 
12,621,348 
12,697,352 
12,844,170 
13,221,988 
13,402,160 
I4,i33.6i5 


Notes  under  £5. 


£ 

1,807,502 
1,653,805 

2,243, 2';6 
2.71  "„  I  32 

3, !  36, 47  7 

3,  64,345 
4,723,672 

4»544.5^o 
4,291.230 

4.^3,313 
4,132,420 
4,863,275 


Total. 


£ 


13,334,752 
14,062,327 
15,841,932 
16,169,594 

I7.3J4.454 

16,847,522 

i7>3-',5,nc?0 
17.241,932 

17,135,40^ 
17,405,001 
17.534.530 
19,001,890 


Taking  from  the  accounts  the  last  half  of  the  year  1809,  the 
average  will  be  found  higher  than  for  the  whole  year,  and 
amounts  to  19,880,310. 

The  accounts  in  the  Appendix  give  very  detailed  returns  for 
the  first  four  months  of  the  present  year,  down  to  the  12th 
May,  from  which  it  will  be  found"  that  the  amount  was  then  in- 
creasing, particularly  in  the  smaller  notes.  The  whole  amount 
of  bank  notes  in  circulation,  exclusive  of  939,990/.  of  bank 
post  bills,  will  be  found  on  the  average  of  the  two  returns  for 
the  5th  and  12th  May  last,  to  be  14,136,610/.  in  notes  of  5/.  and 
upwards,  and  6,173,380/.  in  notes  under  5/.  making  the  sum  of 
20,309.990/.  and,  including  the  bank  post  bills,  the  sum  of  21, 
249,980/. 

By  far  the  most  considerable  part  of  this  increase  since  1798, 
it  is  to  be  observed,  has  been  in  the  article  of  small  notes,  part 
of  which  must  be  considered  as  having  been  infroduced  to  sup- 
ply the  place  of  the  specie  which  was  deficient  at  the  period  of 
the  suspension  of  cash  payments.  It  appears,  however,  that 
the  first  supply  of  small  notes,  which  was  thrown  into  circuia- 
tion  after  that  event,  was  very  small  in  comparison  of  their 
present  amount ;  a  large  augmentation  of  them  appears  to  have 
taken  place  from  the  end  of  the  year  1799  to  that  of  the  year 
1802,  and  a  very  rapid  increase  has  also  taken  place  since  the 
month  of  May  in  the  last  year  to  the  present  time  ;  the  augmen- 


THE  BULLION  REPORT: 


379 


tation  of  these  small  notes  from  ist  May,  1809,  to  the  5th  of 
May,  1810,  being  from  the  sum  of  4,509,470/.  to  the  sum  of 
6,161,020/. 

The  notes  of  the  Bank  of  England  are  principally  issued  inX 
advances  to   government  for  the    public    service,  and  in  ad- 
vances to  the  merchants  upon  the  discount  of  their  bills.  ^ 

Your  Committee  have  had  an  account  laid  before  them,  of 
advances  made  by  the  Bank  to  government  on  land  and  malt, 
Exchequer  Bills,  and  other  securities,  in  every  year  since  the 
suspension  of  cash  payments;  from  which,  as  compared  with 
the  accounts  laid  before  the  Committees  of  1797,  and  which 
were  then  carried  back  for  twenty  years,  it  will  appear  that  the 
yearly  advances  of  the  Bank  to  government  have  upon  an  aver-  y 
age,  since  the  suspension,  been  considerably  lower  in  amount 
than  the  average  amount  of  advances  prior  to  that  event,  and  the 
amount  of  those  advances  in  the  last  two  years,  though  greater 
in  amount  than  those  of  some  years  immediately  preceding,  is 
less  than  it  was  for  any  of  the  six  years  preceding  the  restriction 
of  cash  payments. 

With  respect  to  the  amount  of  commercial  discounts,  your 
Committee  did  not  think  it  proper  to  require  from  the  Direct- 
ors of  the  Bank  a  disclosure  of  their  absolute  amount,  being  a 
part  of  their  private  transactions  as  a  commercial  company,  of 
which,  without  urgent  reason,  it  did  not  seem  right  to  demand 
a  disclosure.  The  late  Governor  and  Deputy  Governor  how- 
ever, at  the  desire  of  your  Committee,  furnished  a  comparative 
scale,  in  progressive  numbers,  showing  the  increase  of  the 
amount  of  their  discounts  from  the  year  1790  to  1809,  both  in- 
clusive. They  made  a  request,  with  which  your  Committee 
have  thought  it  proper  to  comply,  that  this  document  might 
not  be  made  public  ;  the  Committee,  therefore,  have  not  placed 
it  in  the  Appendix  to  the  present  report  but  liave  returned 
it  to  the  Bank.  Your  Committee,  however,  have  to  state  in 
general  terms,  that  the  amount  of  discounts  has  been  progres-  X 
sively  increasing  since  the  year  1796;  and  that  their  amount 
in  the  last  year  (1809)  bears  a  very  high  proportion  to  their 
largest  amount  in  any  year  preceding  1797.  Upon  this  par- 
ticular subject,  your  Committee  are  only  anxious  to  remark, 
that  the  largest  amount  of  mercantile  discounts  by  the  Bank,  if 
it  could  be  considered  by  itself,  ought  never,  in  their  judgment, 
to  be  regarded  as  any  other  than  a  great  public  benefit,  and 
that  it  is  only  the  excess  of  paper  currency  thereby  issued,  and 
kept  out  in  circulation,  which  is  to  be  considered  as  the  evil, 
b    But  your  Committee  must  not  omit  to  state  one  very  impor* 


38o 


APPENDIX. 


tant  principle,  that  the  mere  numerical  return  of  the  amount  of 
>bank  notes  out  in  circulation,  cannot  be  considered  as  at  all 
[deciding  the  question  whether  such  paper  is  oris  not  excessive. 
It  is  necessary  to  have  recourse  to  other  tests.  The  same 
amount  of  paper  may  at  one  time  be  less  than  enough,  and  at 
another  time  more.  The  quantity  of  currency  required  will 
vary  in  some  degree  with  the  extent  of  trade  ;  and  the  increase 
of  our  trade,  which  has  taken  place  since  the  suspension,  must 
have  occasioned  some  increase  in  the  quantity  of  our  currency. 
But  the  quantity  of  currency  bears  no  fixed  proportion  to  the 
quantity  of  commodities  ;  and  any  inferences  proceeding  upon 
such  a  supposition  would  be  entirely  erroneous.  The  effective 
currency  of  the  country  depends  upon  the  quickness  of  circu- 
lation, and  the  number  of  exchanges  performed  in  a  given  lime, 
as  well  as  upon  its  numerical  amount ;  and  all  the  circumstan- 
ces, which  have  a  tendency  to  quicken  or  to  retard  the  rate  of 
circulation,  render  the  same  amount  of  currency  more  or  less 
adequate  to  the  wants  of  trade.  A  much  smaller  amount  is 
required  in  a  high  state  of  public  credit,  than  when  alarms 
make  individuals  call  in  their  advances,  and  provide  against  ac- 
cidents by  hoarding  j  and  in  a  period  of  commercial  security 
and  private  confidence,  than  when  mutual  distrust  discourages 
pecuniary  arrangements  for  any  distant  time.  But,  above  all, 
the  same  amount  of  currency  will  be  more  or  less  adequate,  in 
proportion  to  the  skill  which  the  great  money-dealers  possess  in 
managing  and  economizing  the  use  of  the  circulating  medium. 
Your  Committee  are  of  opinion,  that  the  improvements  which 
have  taken  place  of  late  years  in  this  country,  and  particularly 
in  the  district  of  London,  with  regard  to  the  use  and  economy 
of  money  among  bankers,  and  in  the  mode  of  adjusting  com- 
mercial payments,  must  have  had  a  much  greater  effect  than 
has  hitherto  been  ascribed  to  them,  in  rendering  the  same  sum 
adequate  to  a  much  greater  amount  of  trade  and  payments 
than  formerly.  Some  of  those  improvements  will  be  found  de- 
tailed in  the  evidence  :  they  consist  piincipally  in  the  increased 
use  of  bankers'  drafts  in  the  common  payments  of  London  ;  the 
contrivance  of  bringing  all  such  drafts  daily  to  a  common  re- 
ceptacle, where  they  are  balanced  against  each  other  ;  the  in- 
termediate agency  of  bill-brokers  ;  and  several  other  changes 
in  the  practice  of  London  bankers,  are  to  the  same  effect,  of 
rendering  it  unnecessary  for  them  to  keep  so  large  a  deposit  of 
money  as  formerly.  Within  the  London  district,  it  would  cer- 
tainly appear,  that  a  smaller  sum  of  money  is  required  than 
formerly,  to  perform  the  same  number  of  exchanges  and  amount 


"THE  BULLION  REPORT."  381 

of  payments,  if  the  rate  of  prices  had  remained  the  same.  It 
is  material  also  to  observe,  that  both  the  policy  of  the  Bank  ot 
England  itself,  and  the  competition  of  the  country  bank  paper 
have  tended  to  compress  the  paper  of  the  Bank  of  England, 
more  and  more,  within  London  and  the  adjacent  district.  All 
these  circumstances  must  have  co-operated  to  render  a  smaller 
augmentation  of  Bank  of  England  paper  necessary  to  supply 
the  demands  of  our  increased  trade  than  might  otherwise  have 
been  required  ;  and  shew  how  impossible  it  is,  from  the  numer- 
ical amount  alone  of  that  paper,  to  pronounce  whether  it  is  ex- 
cessive or  not :  a  more  sure  criterion  must  be  resorted  to  ;  and 
such  a  criterion,  your  Committee  have  already  shewn,  is  only 
to  be  found  in  the  state  of  the  exchanges,  and  the  price  of; 
gold  bullion. 

The  particular  circumstances  of  the  two  years  which  are  so 
remarkable  in  the  recent  history  of  our  circulation,  1793  and 
1797,  throw  great  light  upon  the  principle  which  your  Commit- 
tee have  last  stated. 

In  the  year  1793,  the  distress  was  occasioned  by  a  failure  of 
confidence  in  the  country  circulation,  and  a  consequent  pres- 
sure upon  that  of  London.  The  Bank  of  England  did  not 
think  it  advisable  to  enlarge  their  issues  to  meet  this  increased 
demand,  and  their  notes,  previously  issued,  circulating  less 
freely  in  consequence  of  the  alarm  that  prevailed,  proved  in- 
sufficient for  the  necessary  payments.  In  this  crisis,  Parlia- 
ment applied  a  remedy,  very  similar,  in  its  effect,  to  an  enlarge- 
ment of  the  advances  and  issues  of  the  bank  ;  a  loan  of  ex- 
chequer bills  was  authorized  to  be  made  to  as  many  mercantile 
persons,  giving  good  security,  as  should  apply  for  them  ;  and 
the  confidence  which  this  measure  diffused,  as  well  as  the  in- 
creased means  which  it  afforded  of  obtaining  bank  notes 
through  the  sale  of  the  exchequer  bills,  speedily  relieved  the 
distress  both  of  London  and  of  the  country.  Without  offering 
an  opinion  upon  the  expediency  of  the  particular  mode  in 
which  this  operation  was  effected,  your  Committee  think  it  an 
important  illustration  of  the  principle,  that  an  enlarged  accom- 
modation is  the  true  remedy  for  that  occasional  failure  of  con- 
fidence in  the  country  districts,  to  which  our  system  of  paper 
credit  is  unavoidably  exposed. 

The  circumstances  which  occurred  in  the  beginning  of  the 
year  1797,  were  very  similar  to  those  of  1793  ; — an  alarm  of 
invasion,  a  run  upon  the  country  banks  for  gold,  the  failure  of 
some  of  them,  and  a  run  upon  the  Bank  of  England,  forming 
a  crisis  like  that  of  1793,  for  which,  perhaps,  an  effectual  rem- 


3^2 


APPENDIX. 


edy  might  have  been  provided,  if  the  Bank  of  England  h>d 
had  courage  to  extend  instead' of  restricting  its  accommodations 
and  issue  of  notes.  Some  few  persons,  it  appears  from  the  Re- 
port of  the  Secret  Committee  of  the  Lords,  were  of  this  opin- 
ion at  the  time  ;  and  the  late  Governor  and  Deputy  Governor  of 
the  Bank  stated  to  your  Committee,  that  they,  and  many  of  the 
Directors,  are  now  satisfied  from  the  experience  of  the  year 
1797,  that  the  diminution  of  their  notes  in  that  emergency  in- 
creased the  public  distress  :  an  opinion  in  the  correctness  of 
which  your  Committee  entirely  concur. 

It  appears  to  your  Committee,  that  the  experience  of  the 
Bank  of  England  in  the  years  1793  and  1797,  contrasted  with 
the  facts  which  have  been  stated  in  the  present  report,  suggests 
a  distinction  most  important  to  be  kept  in  view,  between  that 
demand  upon  the  Bank  for  gold  for  the  supply  of  the  domestic 
channels  of  circulation, 'sometimes  a  very  great  and  sudden 
one,  which  is  occasioned  by  a  temporary  failure  of  confidence, 
and  that  drain  upon  the  Bank  for  gold  which  grows  out  of  an 
unfavourable  state  of  the  foreign  exchanges.  The  former, 
while  the  Bank  maintains  its  high  credit,  seems  likely  to  be  best 
relieved  by  a  judicious  increase  of  accommodation  to  the  coun- 
try ;  the  latter,  so  long  as  the  Bank  does  not  pay  in  specie, 
ought  to  suggest  to  the  Directors  a  question,  whether  their  is- 
sues may  not  be  already  too  abundant. 
%  Your  Committee  have  much  satisfaction  in  thinking  that  the 
'  Directors  are  perfectly  aware  that  they  may  err  by  a  too  scanty 
supply  in  a  period  of  stagnant  credit.  And  your  Committee 
are  clearly  of  opinion,  that  although  it  ought  to  be  the  general 
policy  of  the  Bank  Directors  to  diminish  their  paper  in  the 
event  of  the  long  continuance  of  a  high  price  of  bullion  and  a 
very  unfavourable  exchange,  yet  it  is  essential  to  the  commer- 
cial interests  of  this  country,  and  to  the  general  fulfilment  of 
those  mercantile  engagements  which  a  free  issue  of  paper  may 
have  occasioned,  that  the  accustomed  degree  of  accommoda- 
tion to  the  merchants  should  not  be  suddenly  and  materially 
reduced  ;  and  that  if  any  general  and  serious  difficulty  or  ap- 
prehension on  this  subject  should  arise,  it  may,  in  the  judg- 
ment of  your  Committee,  be  counteracted  withoi  t  danger,  and 
with  advantage  to  the  public,  by  a  liberality  in  the  issue  of 
Bank  of  England  paper  proportioned  to  the  urgency  of  the 
particular  occasion.  Under  such  circumstances,  it  belongs  to 
the  Bank  to  take  likewise  into  their  own  consideration,  how  far 
it  may  be  practicable,  consistently  with  a  due  regard  to  the  im- 
mediate interests  of  the  public  service,  rather  to  reduce  their 


"TKE  BULLION  REPORT.'1  ^3 

paper  by  a  gradual  reduction  of  their  advances  to  government, 
than  by  too  suddenly  abridging  the  discounts  to  the  merchants. 
-k  2.  Before  your  Committee  proceed  to  detail  what  they  have 
collected  with  respect  to  the  amount  of  country  bank  paper, 
they  must  observe,  that  so  long  as  the  cash  payments  of  the 
Bank  are  suspended,  the  whole  paper  of  the  country  bankers 
is  a  superstructure  raised  upon  the  foundation  of  the  paper  of 
the  Bank  of  England.  The  same  check,  which  the  converti- 
bility into  specie,  under  a  better  system,  provides  against  the 
excess  of  any  part  of  the  paper  circulation  is,  during  the  present 
system,  provided  against  an  excess  of  country  bank  paper,  by 
its  convertibility  into  Bank  of  England  paper.  If  an  excess  of 
paper  be  issued  in  a  country  district,  while  the  London  circula- 
tion does  not  exceed  its  due  proportion,  there  will  be  a  local 
rise  of  prices  in  that  country  district,  but  prices  in  London  will 
remain  as  before.  Those  who  have  the  country  paper  in  their 
hands  will  prefer  buying  in  London  where  things  are  cheaper, 
and  will  therefore  return  that  country  paper  upon  the  banker 
who  issued  it,  and  will  demand  from  him  Bank  of  England  notes 
or  bills  upon  London  ;  and  thus,  the  excess  of  country  paper 
being  continually  returned  upon  the  issuers  for  Bank  of  England 
paper,  the  quantity  of  the  latter  necessarily  and  effectually  limits 
the  quantity  of  the  former.  This  is  illustrated  by  the  account 
which  has  been  already  given  of  the  excess,  and  subsequent  limi- 
tation, of  the  paper  of  the  Scotch  banks,  about  the  year  i  763.  Jf 
the  Bank  of  England  paper  itself  should  at  any  time,  dining  the 
suspension  of  cash  payments,  be  issued  to  excess,  a  correspond- 
ing excess  may  be  issued  of  country  Bank  paper  which  will  not 
be  checked  ;  the  foundation  being  enlarged,  the  superstructure 
admits  of  a  proportionate  extension.  And  thus,  under  such  a 
system,  the  excess  of  Bank  of  England  paper  will  produce  its 
effect  upon  prices  not  merely  in  the  ratio  of  its  own  increase, 
but  in  a  much  higher  proportion. 

It  has  not  been  in  the  power  of  your  Committee  to  obtain 
such  information  as  might  enable  them  to  state,  with  anything 
like  accuracy,  the  amount  of  country  bank  paper  in  circula- 
tion. But  they  are  led  to  infer  from  all  the  evidence  they  have 
been  able  to  procure  on  this  subject,  not  only  that  a  great 
number  of  new  country  banks  has  been  established  within  these 
last  two  years,  but  also  that  the  amount  of  issues  of  those  whi^h 
are  of  an  older  standing  has  in  general  been  very  considerably 
increased  :  whilst  on  the  other  hand,  the  high  state  of  mercantile 
and  public  credit,  the  proportionate  facility  of  converting  at  short 
notice  all  public  and  commercial  securities  into  Bank^  of  Eng- 


384  APPENDIX. 

land  paper,  joined  to  the  preference  generally  given  within  the 
limits  of  its  own  circulation  to  the  paper  of  a  well-established 
country  bank  over  that  of  the  Bank  of  England,  have  prob 
ably  not  rendered  it  necessary  for  them  to  keep  any  large 
permanent  deposits  of  Bank  of  Eng'and  paper  in  their 
hands.  And  it  seems  reasonable  to  believe  that  the  total 
amount  of  the  unproductive  stock  of  all  the  country  banks, 
consisting  of  specie  and  Bank  of  England  paper,  is  much  less, 
at  this  period,  under  a  circulation  vastly  increased  in  ex- 
tent, than  it  was  before  the  restriction  of  1797.  The  tempta- 
tion to  establish  country  banks,  and  issue  promissory  notes, 
has  therefore  greatly  increased.  Some  conjecture  as  to  the 
probable  total  amount  of  those  issues,  or  at  least  as  to  their 
recent  increase,  may  be  formed,  as  your  Committee  conceive, 
from  the  amount  of  the  duties  paid  for  stamps  on  the  reissua- 
ble  notes  of  country  banks  in  Great  Britain.  The  total  amount 
of  these  duties  for  the  year  ended  on  the  10th  of  October, 
1808,  appears  to  have  been  60,522/.  15^.  3d.,  and  for  the  year 
ended  on  the  10th  of  October,  1809,  175,129/.  17^.  jd.  It 
must,  however,  be  observed,  that  on  the  10th  of  October,  1808, 
these  duties  experienced  an  augmentation  somewhat  exceeding 
one-third  ;  and  that  some  regulations  were  made,  imposing  lim- 
itations with  respect  to  the  reissue  of  all  notes  not  exceeding 
2/.  2S.,  the  effect  of  which  has  been  to  produce  a  much  more 
than  ordinary  demand  for  stamps  or  notes  of  this  denomination 
within  the  year  1809.  Owing  to  this  circumstance,  it  appears 
impossible  to  ascertain  what  may  have  been  the  real  increase 
in  the  circulation  of  the  notes,  not  exceeding  2/.  2s.,  within  the 
last  year ;  but  with  respect  to  the  notes  of  a  higher  value,  no 
alteration  having  been  made  in  the  law  as  to  their  reissue, 
the  following  comparison  affords  the  best  statement  that 
can  be  collected  from  the  documents  before  the  Committee,  of 
the  addition  made  in  the  year  1809,  to  the  number  of  those 
notes. 

Number  of  Country  Bank  Notes  exceeding  2/.  2s.  each,  stamped 
in  the  years  ended  the  10th  of  October,  1808,  and  10th  of 
October,  1809,  respectively: 

1808.         1809. 

No.  No. 

Exceeding  £2  2,  and  not  exceeding  £$  5 666,071  922,073 

Exceeding  ^5  5,  and  not  exceeding  ^20 198,473  380,006 

Exceeding  ^20,    and  not  exceeding  ^30 2,425 

Exceeding  ^30,    and  not  exceeding  ^"50 674 

Exceeding  ^50,    and  not  exceeding  ,£100 2,6il 


"  THE  BULLION  REPORT:'  385 

Assuming  that  the  notes  in  the  first  two  of  these  classes, 
were  all  issued  for  the  lowest  denomination  to  which  the  duties 
respectively  attach,  and  such  as  are  most  commonly  met  with 
in  the  circulation  of  country  paper,  viz.,  notes  of  5/.  and  10/. 
[although  in  the  second  class  there  is  a  considerable  number  of 
20/.]  and  even  omitting  altogether  from  the  comparison  the 
notes  of  the  three  last  classes,  the  issue  of  which  your  Committee 
understands  is  in  fact  confined  to  the  chartered  banks  of  Scot- 
land, the  result  would  be,  that,  exclusive  of  any  increase  in  the 
number  of  notes  under  2/.  2s.  the  amount  of  country  bank 
paper  stamped  in  the  year  ended  the  10th  of  October,  1809, 
has  exceeded  that  of  the  year  ended  on  the  10th  of  October, 
1808,  in  the  sum  of  3,095,340/.  Your  Committee  can  form  no 
positive  conjecture  as  to  the  amount  of  country  bank  paper  can- 
celled and  withdrawn  from  circulation  in  the  course  of  the  last 
year.  But  considering  that  it  is  the  interest  and  practice  of  the 
country  bankers  to  use  the  same  notes  as  long  as  possible  ;  that, 
as  the  law  now  stands,  there  is  no  limitation  of  time  to  the  re- 
issuing of  those  not  exceeding  2/.  2$.'f  and  that,  all  above  that 
amount  are  reissuable  for  three  years  from  the  date  of  their 
first  issuing  ;  it  appears  difficult  to  suppose  that  the  amount  of 
notes  above  2/.  2s.  cancelled  in  1809,  could  be  equal  to  the 
whole  amount  stamped  in  1808  :  but  even  upon  that  supposi- 
tion, there  would  still  be  an  increase  for  1809  in  the  notes  of 
5/.  and  10/.  alone,  to  the  amount  above  specified  of  3,095,340/. 
to  which  must  be  added  an  increase  within  the  same  period  of 
Bank  of  England  notes  to  the  amount  of  about  1,500,000/. 
making  in  the  year  1809,  an  addition  in  the  whole  of  between 
four  and  five  millions  to  the  circulation  of  Great  Britain  alone, 
deducting  only  the  gold  which  may  have  been  withdrawn  in  the 
course  of  that  year  from  actual  circulation,  which  cannot  have 
been  very  considerable,  and  also  making  an  allowance  for  some 
increase  in  the  amount  of  such  country  paper,  as,  though  stamped, 
may  not  be  in  actual  circulation.  This  increase  in  the  general 
paper  currency  in  last  year,  even  after  these  deductions,  would 
probably  be  little  short  of  the  amount  which  in  almost  any  one 
year,  since  the  discovery  of  America,  has  been  added  to  the 
circulating  coin  of  the  whole  of  Europe.  Although,  as  your 
Committee  has  already  had  occasion  to  observe,  no  certain 
conclusion  can  be  drawn  from  the  numerical  amount  of  paper 
in  circulation,  considered  abstractedly  from  all  other  circum- 
stances, either  as  to  such  paper  being  in  excess,  or  still  less  as 
to  the  proportion  of  such  excess  ;  yet  they  must  remark,  that 
the  fact  of  any  very  great  and  rapid  increase  in  that  amount 
17 


3  86  APPENDIX. 

when  coupled  and  attended  with  all  the  indications  of  a  depre- 
ciated circulation,  does  afford  the  strongest  confirmatory  evi- 
dence, that  from  the  want  of  some  adequate  check,  the  issues 
of  such  paper  have  not  been  restrained  within  their  proper 
limits. 
y  Your  Committee  cannot  quit  this  part  of  the  subject  without 
/  further  observing,  that  the  addition  of  between"  four  and  five  mil- 
lions sterling  to  the  paper  circulation  of  this  country,  has  doubtless 
been  made  at  a  very  small  expense  to  the  parties  issuing  it, 
only  about  100,000/.  having  been  paid  thereupon  in  stamps  to 
the  revenue,  and  probably  for  the  reasons  already  stated,  no 
corresponding  deposits  of  gold  or  Bank  of  England  notes  being 
deemed  by  the  country  banks  necessary  to  support  their  addi- 
tional issues.  These  parties,  therefore,  it  may  be  fairly  stated, 
have  been  enabled  under  die  protection  of  the  law,  which  vir- 
tually secures  them  against  such  demands,  to  create  within  the 
last  year  or  fifteen  months,  at  a  very  tntling  expense,  and  in  a 
manner  almost  free  from  all  present  risk  to  their  respective 
credits  as  dealers  in  paper  money,  issues  of  that  article  to  the 
amount  of  several  millions,  operating,  in  the  first  instance  and 
in  their  hands,  as  capital  for  their  own  benefit,  and  when  used 
as  such  by  them,  falling  into  and  in  succession  mixing  itself  with 
the  mass  of  circulation-  of  which  the  value  in  exchange  for  all 
other  commodities  is  gradually  lowered  in  proportion  as  that 
mass  is  augmented.  If  your  Committee  could  be  of  opinion 
that  the  wisdom  of  Parliament  would  not  be  directed  to  apply 
a  proper  remedy  to  a  state  of  things  so  unnatural,  and  teeming, 
if  not  corrected  in  time,  with  ultimate  consequences,  so  preju- 
dicial to  the  public  welfare,  they  would  not  hesitate  to  declare 
an  opinion,  that  some  mode  ought  to  be  derived  of  enabling 
the  state  to  participate  much  more  largely  in  the  profits  accru- 
ing from  the  present  system  ;  but  as  this  is  by  no  means  the 
policy  they  wish  to  recommend,  they  will  conclude  their  obser- 
vations on  this  part  of  the  subject,  by  observing  that  in  propor- 
tion as  they  most  fully  agree  with  Dr.  Adam  Smith  and  all  the 
most  able  writers  and  statesmen  of  this  country,  in  considering 
[  a  paper  circulation  constantly  convertible  into  specie,! as  one 
of  the  greatest  practical  improvements  which  can  be  made  in 
the  political  and  domestic  economy  of  any  state  ;  and  m  viewing 
the  establishment  of  the  country  banks  issuing  such  paper  as  a 
most  valuable  and  essential  branch  of  that  improvement  in  this 
kingdom  ;  in  the  same  proportion  is  your  Committee  anxious 
to  revert  as  speedily  as  possible  to  the  former  practice 
and    state  of  things  in   this  :  espect  :    convinced   on   the  one 


"  THE  BULLION  REPORT."  3S7 

hand,  that  anything  like  a  permanent  and  systematic  departure 
from  that  practice  must  ultimately  lead  to  results,  which  among 
other  attendant  calamities,  would  be  destructive  of  the  system 
itself;  and  on  the  other,  that  such  an  event  would  be  the  more 
to  be  deprecated,  as  it  is  only  in  a  country  like  this,  where  good 
faith,  both  public  and  private,  is  held  so  high,  and  where,  under 
the  happy  union  of  liberty  and  law,  property  and  the  securities 
of  every  description  by  which  it  is  represented,  are  equally 
protected  against  the  encroachments  of  power  and  the  violence 
of  popular  commotion,  that  the  advantages  of  this  system,  unac- 
companied with  any  of  its  dangers,  can  be  permanently  enjoyed, 
and  earned  to  their  fullest  extent. 

Upon  a  review  of  all  the  facts  and  reasonings,  which  have 
been  submitted  to  the  consideration  of  your  Committee  in  the 
course  of  their  inquiry,  they  have  formed  an  opinion,  which 
they  submit  to  the  House  : — That  there  is  at  present  an  excess 
in  the  paper  circulation  of  this  country,  of  which  the  most  un- 
cquivocal  symptom  is  the  very  high  price  of  bullion,  and  next 
to  that,  the  low  state  of  the  continental  exchanges;  that  this 
excess  is  to  be  ascribed  to  the  want  of  a  sufficient  check  and 
control  in  the  issues  of  paper  from  the  Bank  of  England  ;  and 
originally  to  the  suspension  of  cash  payments,  which  removed 
the  natural  and  true  control.  For  upon  a  general  view  of  the 
subject,  your  Committee  are  of  opinion,  that  no  safe,  certain, 
and  constantly  adequate  provision  against  an  excess  of  paper 
currency,  either  occasional  or  permanent,  can  be  found,  ex- 
cept in  the  convertibility  of  all  such  paper  into  specie.  Your 
Committee  cannot,  therefore,  but  see  reason  to  regret,  that  the 
suspension  of  cash  payments,  which,  in  the  most  favourable 
light  in  which  it  can  be  viewed,  was  only  a  temporary  measure, 
has  been  continued  so  long  ;  and  particularly,  that  by  the 
manner  in  winch  the  present  continuing  act  is  framed,  the 
character  should  have  been  given  to  it  of  a  permanent  war 
measure. 

Your  Committee  conceive  that  it  would  be  superfluous  to 
point  out,  in  detail,  the  disadvantages  which  must  result  to  the 
country,  from  any  such  general  excess  of  currency  as  lowers 
its  relative  value.  The  effect  of  such  an  augmentation  of  prices 
upon  all  money  transactions  for  time;  the  unavoidable  injury 
suffered  by  annuitants,  and  by  creditors  of  every  description, 
both  private  and  public  ;  the  unintended  advantage  gained  by 
government  and  all  other  debtors  ;  are  consequences  too  obvious 
u>  require  proof,  and  too  repugnant  to  justice  to  be  left  without 
remedy.     By  far  the  most  important  portion  of  this  effect  it  ap- 


388  APPENDIX. 

pears  to  your  Committee  to  be  that  which  is  communicated  tn 
the  wages  of  common  country  labor,  the  rate  of  which,  it  is  well 
known,  adapts  itself  more  slowly  to  the  changes  which  happen  in 
the  value  of  money,  than  the  price  of  any  other  species  of  labor 
or  commodity.  And  it  is  enough  for  your  Committee  to  allude 
to  some  classes  of  the  public  servants,  whose  pay,  if  once 
raised  in  consequence  of  a  depreciation  of  money,  cannot  fo 
conveniently  be  reduced  again  to  its  former  rate,  even  after 
money  shall  have  recovered  its  value.  The  future  progress  of 
these  inconveniences  and  evils,  if  not  checked,  must  at  no 
great  distance  of  time  work  a  practical  conviction  upon  the 
minds  of  all  those  who  may  still  doubt  their  existence  ;  but  even 
if  their  progressive  increase  were  less  probable  than  it  appears 
to  your  Committee,  they  cannot  help  expressing  an  opinion, 
that  the  integrity  and  honor  of  Parliament  are  concerned,  not 
to  authorize  longer  than  is  required  by  imperious  necessity,  the 
continuance  in  this  great  commercial  country  of  a  system  of 
circulation,  in  which  that  natural  check  or  control  is  absent 
which  maintains  the  value  of  money,  and  by  the  permanency 
of  that  common  standard  of  value,  secures  the  substantial  jus- 
tice and  faith  of  moneyed  contracts  and  obligations  between  man 
and  man. 

Your  Committee  moreover  beg  leave  to  advert  to  the  temp- 
tation to  resort  to  a  depreciation  even  of  the  value  of  the  gold 
coin  by  an  alteration  of  the  standard,  to  which  Parliament  itself 
might  be  subjected  by  a  great  and  long-continued  excess  of 
paper.  This  has  been  the  resource  of  many  governments 
under  such  circumstances,  and  is  the  obvious  and  most  easy 
remedy  to  the  evil  in  queslion.  But  it  is  unnecessary  to  dwell 
on  the  breach  of  public  faith  and  dereliction  of  a  primary  duty 
of  government,  which  would  manifestly  be  implied  in  preferring 
the  reduction  of  the  coin  down  to  the  standard  of  the  paper,  to 
the  restoration  of  the  paper  to  the  legal  standard  of  the  coin. 

Your  Committee  therefore,  having  very  anxiously  and  de- 
liberately considered  this  subject,  report  it  to  the  House  as 
their  opinion,  that  the  system  of  the  circulating  medium  of  this 
country  ought  to  be  brought  back,  with  as  much  speed  as  is 
compatible  with  a  wise  and  necessary  caution,  to  the  original 
principle  of  cash  payments  at  the  option  of  the  holder  of  Bank- 
paper. 

Your  Committee  have  understood  that  remedies,  or  palliatives, 
of  a  different  nature,  have  been  projected;  such  as,  a  compul- 
sory limitation  of  the  amount  of  Bank  advances  and  discounts, 
during  the  continuance  of  the   suspension ;  or,  a  compulsory 


"  THE  BULLION  REPORT:1  389 

limitation  during,  the  same  period,  of  the  rate  of  Bank  profits 
and  dividends,  by  carrying  the  surplus  of  profits  above  that  rate 
to  the  public  account.  But,  in  the  judgment  of  your  Com- 
mittee, such  indirect  schemes,  for  palliating  the  possible  evils 
resulting  from  the  suspension  of  cash  payments,  would  prove/ 
wholly  inadequate  for  that  purpose,  because  the  necessary  p?o£ 
portion  could  never  be  adjusted,  and  if  once  fixed,  might  ag- 
gravate very  much  the  inconveniences  of  a  temporary  pressure  ; 
and  even  if  their  efficacy  could  be  made  to  appear,  they 
would  be  objectionable  as  a  most  hurtful  and  improper  inter- 
ference with  the  rights  of  commercial  property. 

According  to  the  best  judgment  your  Committee  has  been 
enabled  to  form,  no  sufficient  remedy  for  the  present,  or  security 
for  the  future,  can  be  pointed  out,  except  the  repeal  of  the  law 
which  suspends  the  cash  payments  of  the  Bank  of  England. 

In  effecting  so  important  a  change,  your  Committee  are  of 
opinion  that  some  difficulties  must  be  encountered,  and  that 
there  are  some  contingent  dangers  to  the  Bank,  against  which 
it  ought  most  carefully,  and  strongly  to  be  guarded.  But  all 
those  may  be  effectually  provided  for,  by  entrusting  to  the  dis- 
cretion of  the  Bank  itself  the  charge  of  conducting  and  com- 
pleting the  operation,  and  by  allowing  to  the  Bank  so  ample  a 
period  of  time  for  conducting  it,  as  will  be  more  than  sufficient  to 
effect  its  completion.  To  the  discretion,  experience,  and  integ- 
rity of  the  Directors  of  the  Bank,  your  Committee  believe  that 
Parliament  may  safely  entrust  the  charge  of  effecting  that  which 
Parliament  may  in  its  wisdom  determine  upon  as  necessary  to  be 
effected  ;  and  that  the  Directors  of  that  great  institution,  far  from 
making  themselves  a  party  with  those  who  have  a  temporary  in- 
terest in  spreading  alarm,  will  take  a  much  longer  view  of  the 
permanent  interests  of  the  Bank,  as  indissolubly  blended  with 
those  of  the  public.  The  particular  mode  of  gradually  effecting  the 
resumption  of  cash  payments  ought  therefore,  in  the  opinion  of 
your  Committee,  to  be  left  in  a  great  measure  to  the  discretion  of 
the  Bank,  and  Parliament  ousht  to  do  little  more  than  to  fix  . 
definitely  the  time  at  which  cash  payments  are  to  become,  as 
before,  compulsory.  The  period  allowed  ought  to  be  ample,  in 
order  that  the  Bank  Directors  may  feel  their  way,  and  that,  hav- 
ing a  constant  watch  upon  the  varying  circumstances  that  ought 
to  guide  them,  and  availing  themselves  only  of  favourable  cir- 
cumstances, they  may  tread  back  their  steps  slowly,  and  may 
preserve  both  the  course  of  their  own  affairs  as  a  company, 
and  that  of  public  and  commercial  credit,  not  only  safe,  but 
unembarrassed. 


39° 


APPENDIX. 


With  this  view,  your  Committee  would  suggest,  that  the  re- 
striction on  cash  payments  cannot  safely  be  removed  at  an 
earlier  period  than  two  years  from  the  present  time  ;  but  your 
Committee  are  of  opinion,  that  early  provision  ought  to  \\& 
made  by  Parliament  for  terminating,  by  the  end  of  that  period, 
the  operation  of  the  several  statutes  which  have  imposed  and 
continued  that  restriction. 

In  suggesting  this  period  of  two  years,  your  Committee  have 
not  overlooked  the  circumstance,  that,  as  the  law  stands  at 
present,  the  Bank  would  be  compelled  to  pay  in  cash  at  the 
end  of  six  months  after  the  ratification  of  a  definitive  treaty  of 
peace  ;  so  that  if  peace  were  to  be  concluded  within  that 
period*  the  recommendation  of  your  Committee  might  seem  to 
have  the  effect  of  postponing,  instead  of  accelerating  the  re- 
sumption of  payments.  But  your  Committee  are  of  opinion, 
that  if  peace  were  immediately  to  be  ratified,  in  the  present 
state  of  our  circulation,  it  would  be  most  hazardous  to  com- 
pel the  Bank  to  pay  cash  in  six  months,  and  would  be  found 
wholly  impracticable.  Indeed,  the  restoration  of  peace,  by 
opening  new  fields  of  commercial  enterprise,  would  multiply 
instead  of  abridging  the  demands  upon  the  Bank  for  discount, 
and  would  render  it  peculiarly  distressing  to  the  commercial 
world  if  the  Bank  were  suddenly  and  materally  to  restrict 
their  issues.  Your  Committee  are  therefore  of  opinion,  that 
even  if  peace  should  intervene,  two  years  should  be  given  to 
the  Bank  for  resuming  its  payments  ;  but  that  even  if  the  war 
should  be  prolonged,  cash  payments  should  be  resumed  by  the 
end  of  that  period. 

Your  Committee  have  not  been  indifferent  to  the  considera- 
tion of  the  possible  occurrence  of  political  circumstances, 
which  mayb^  thought  hereafter  to  furnish  an  argument  in  favor 
of  some  prolongation  of  the  proposed  period  of  resuming  cash 
payments,  or  even  in  favor  of  a  new  law  for  their  temporary 
restriction  after  the  Bank  shall  have  opened.  They  are,  how- 
ever, far  from  anticipating  a  necessity,  even  in  any  case,  of 
returning  to  the  present  system.  But  if  occasion  for  a  new 
measure  of  restriction  could  be  supposed  at  any  time  to  arise," 
it  can  in  no  degree  be  grounded,  as  your  Committee  think,  0:1 
any  state  of  the  foreign  exchanges  (which  they  trust  that  they  have 
abundantly  shown  the  Bank  itself  to  have  the  general  power 
of  controlling),  but  on  a  political  state  of  things  producing,  or 
likely  very  soon  to  produce,  an  alarm  at  home,  leading  to  so  in- 
definite a  demand  for  cash  for  domestic  uses  a's  it  must  be  im- 
possible for  any  banking  establishment  to  provide  against.      A 


"THE  BULLION  REPORT V  391 

return  to  the  ordinary  system  of  banking  is,  on  the  very  ground 
of  the  late  extravagant  fall  of  the  exchanges  and  high  price  of 
gold,  peculiarly  requisite.  That  alone  can  effectually  restore 
general  confidence  in  the  value  of  the  circulating  medium  of 
the  kingdom;  and  the  serious  expectation  of  this  event  mm  1 
enforce  a  preparatory  reduction  of  the  quantity  of  paper,  and 
all  other  measures  which  accord  with  the  true  principles  of 
banking.  The  anticipation  of  the  time  when  the  Bank  will  be 
constrained  to  open,  may  also  be  expected  to  contribute  10 
the  improvement  of  the  exchanges  ;  whereas  a  post ponement 
of  this  era,  so  indefinite  as  that  of  six  months  after  the  termina- 
tion of  the  war,  and  especially  in  the  event  of  an  exchange 
continuing  to  fall  (which  more  and  more  would  generally  be 
perceived  to  arise  from  an  excess  of  paper,  and  a  consequent 
depreciation  of  it),  may  lead,  under  an  unfavourable  state  of 
public  affairs,  «to  such  a  failure  of  confidence  (and  especially 
among  foreigners),  in  the  determination  of  Parliament  to  en- 
force a  return  to  the  professed  standard  of  the  measure  of  pay- 
ments, as  may  serve  to  precipitate  the  further  fall  of  the 
exchanges,  and  lead  to  consequences  at  once  the  most  dis- 
creditable and  disastrous. 

Although  the  details  of  the  best  mode  of  returning  to  cash 
payments  ought  to  be  left  to  the  discretion  of  the  Bank  of 
England,  as  already  stated,  certain  provisions  would  be  neces- 
sary, under  the  authority  of  Parliament,  both  for  the  convenience 
of  the  Bank  itself,  and  for  the  security  of  the  other  banking 
establishments  in  this  country  and  in  Ireland. 

Your  Committee  conceive  it  may  be  convenient  for  the  Bank 
to  bj  permitted  to  issue  notes  under  the  value  of  5/.  for  some 
little  time  after  it  had  resumed  payments  in  specie. 

It  will  be  convenient,  also,  for  the  chartered  Banks  of  Ireland 
and  Scotland,  and-  all  the  country  banks,  that  they  should  not 
ho  compelled  to  pay  in  specie  until  some  time  after  the  resump- 
tion of  payments  in  cash,  by  the  Bank  of  England  ;  but  that 
they  should  continue  for  a  short  period  upon  their  present 
footing,  of  being  liable  to  pay  their  own  notes  on  demand,  in 
Bank  of  England  paper. 


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